Pensions - Articles - Flat rate of pension tax relief looks to be off the table

 Helen Morrissey, head of retirement analysis at Hargreaves Lansdown: “A flat rate of pension tax relief is off the table, according to recent speculation. This follows concerns about the impact it would have on public sector workers, but will no doubt be greeted with a sigh of relief by public and private sector workers alike. This has not been officially confirmed, but the introduction of a flat rate of relief would have been highly complex, expensive and brought further confusion to an already tangled system.

 However, other options remain on the table – most notably reducing the amount of tax-free cash people can take from their pension. The lump sum allowance was set at £268,275 by the last Government when they removed the lifetime allowance. This meant that if people built up pensions over and above that previous allowance they would not have access to the generous 25% tax free lump sum on monies over the allowance. Any move to restrict it further will be unpopular with those planning their retirement with higher levels of saving. The constant moving of the boundaries, so soon after the lifetime allowance was removed makes planning impossible.

 What we really need is clarity for those with pensions below this limit. Ripping money out of a pension now potentially deprives it of future investment growth and leaves it subject to tax. There’s also the possibility it could be placed in a low interest bank account where its purchasing power gets eaten away by inflation over time.

 This ongoing speculation about changes to tax-free cash is damaging. The Chancellor has recognised that businesses need certainty in the taxation environment to make investment decisions. The same is true of our personal finances. The government have left people to make impossible decisions about their investments and pensions. The sooner changes such as raiding tax-free cash, can be ruled out, the more people can focus on the long term again.”