Pensions - Articles - Will the government cut tax relief?

As it becomes increasingly likely that the Government will reform the current tax relief system, either in the up and coming Budget or in the not too distant future, Stuart Price, Partner and Actuary at Quantum Advisory, looks into the options and possible repercussions.

 Stuart said: “Currently, the complex system of giving tax relief at people's marginal income rate costs the Treasury around £38bn a year.

 “It is being suggested that Chancellor Philip Hammond may opt to update this by offering either a single flat rate of 20% for all savers which would save the Treasury around £13bn a year, or a single flat rate set at 30% which would be broadly cost neutral.

 “While there will certainly be losers in this single flat rate tax relief system, namely the higher tax rate-payers not currently impacted by the Annual Allowance, it is my belief that simplifying the system can only be a positive move.
 “The suggested step could remove the requirement for the Annual Allowance which compounds the move towards a simpler system, as undeniably in recent years the entire pensions landscape has become more and more complex for people to understand and for the pensions industry to administer.

 “Offering the greater value of 30% would make pension saving more beneficial for the less well-off and therefore should work as an incentive to encourage more people to invest in their pensions, however, this is looking the less likely outcome as Hammond pushes for the 20% rate. If the latter scenario comes into fruition, it has been mooted that the profits could be used to fund national insurance cuts for younger workers. For the cynical, this could be seen as a cunning ploy to reengage with younger voters, but it would nonetheless help out a generation plagued by increasing student debt and a never-ending struggle to get a foot on the property ladder.

 “Overall, it remains to be seen if the Government will introduce such a far-reaching policy in November’s Budget but, given the economic benefits of moving towards a different tax relief system, I’d recommend pension savers prepare themselves for such changes in the not too distant future.”

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