Rumours have been swirling over several years that pensions tax relief could be set at a flat rate of 20% for everyone, severely impacting higher and additional rate taxpayers.
Previous governments have considered this option or the alternative of awarding relief at the point of withdrawal. There was a strong possibility that this would happen under George Osborne, however this was abandoned ahead of the referendum for Brexit.
With the government providing unprecedented support in the wake of the coronavirus pandemic and needing to find ways of recouping the money, is now the time to end pensions tax relief?
Together with a review of Capital Gains Tax, the reduction in tax relief on pensions could prove to be an attractive way to make vast savings.
The cost to the Treasury each year is reported to be an estimated £35 – £40 billion, and a withering report published by the Public Accounts Committee on July 20th 2020 urged the Government to review the tax relief rates.
The report writes:
‘The Government has not made any assessment of whether that huge cost actually encourages saving for retirement, or reduces dependence on the state retirement benefits’
It also calls into question as to who was benefiting from the tax relief and raising concerns that low-paid and part-time workers are amongst those who are not benefitting.
However the decision to make these kind of savings should not be taken lightly, as highlighted by James Riley, president of the Society of Pension Professionals.
He identified the potential for the pensions savings of millions of people to be detrimentally affected, stating:
‘Pensions savers will be paying for the pandemic for years to come out of their taxes. Care needs to be taken not to exacerbate the issue of inadequate saving for retirement, which will ultimately create further pressure on the nation’s finances’
It seems inevitable that Rishi Sunak will need to consider reviewing this benefit as part of the Autumn Budget, so now could be a perfect opportunity to encourage clients to take advantage of the tax relief available, perhaps making the most of any unused annual allowances to maximise their pension funding.
At Plus, our paraplanners have a vast array of experience, enabling us to support you & your clients to take advantage of their pensions tax relief, while they still can!!