Millions could be affected by changes to pension tax relief. Experts reveal what it would mean for you
The plan would affect up to six million higher rate taxpayers and cost the wealthiest people around £2,600 a year, according to figures from the Institute for Fiscal Studies The Treasury has not responded to the claims while Reeves has previously said she has “no plans” to change the current setup, although stopped at categorically ruling out such a move.
To limit the cost of tax relief to the Exchequer, most people have an annual allowance of £60,000, although those who have flexibly accessed their pension and very high earners have a lower allowance. However, the changes would increase the attractiveness of pension saving for basic rate taxpayers, according to Becky O’Connor, Director of Public Affairs at Pensionbee.
The Government has pledged to not raise the main rates of income tax, national insurance or VAT which means it may be limited in terms of what it can borrow.How likely is it that the changes will come into play?Steve Webb, former pensions minister and partner at consultants LCP, said: “For decades, cash-strapped governments have looked jealously at the cost of pension tax relief and tried to find ways of raiding it.
Tom Selby, Director of Public Policy at AJ Bell, added: “The potential for a raid on retirement savings incentives is a rumour that does the rounds before pretty much every Budget. He added: “If a flat rate of pension tax relief below 40 per cent were applied on these schemes, the only way to ensure the correct level of tax relief was applied to contributions from higher and additional-rate taxpayers would be to hit those members with a tax charge likely running into thousands of pounds.
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