Removing tax breaks on pensions would cause confusion and could stop people saving ✒️ stevewebb1 for ipaperviews
Tax-free cash is one of the few elements of the system that people have heard of and which makes pension saving more attractive is accompanied by speculation about potential changes to pension tax relief. Rumours abound in the press in the weeks before the Budget: will this be the year when the tax free lump sum is finally scaled back? Will high earners see a cut in the amount they can contribute whilst still qualifying for tax relief?but without looking at the big picture.
Whilst the Government has not come up with any answers to this question, the independent Institute for Fiscal Studies . The IFS proposals have the advantage of being comprehensive and systematic, but there are real questions about their political feasibility and about the length of time it would take to move to the IFS’s “pure” system.
The starting point of the IFS is that the tax system should be “fiscally neutral”. Unless policy makers specifically decide otherwise, the tax treatment of an activity should neither penalise it nor subsidise it. Against this benchmark, the IFS argue that the system of pension tax relief is too generous, especially for high earners..
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