No surprise today on pensions tax relief – but maybe a nasty one later
“As expected, the Chancellor made changes to IHT and pensions tax relief that amount to “save less now, inherit more later”; today’s high earners won’t be able to save as much on a tax-free basis, but will be able to inherit the ancestral home and the remains of their parents’ pensions intact. People might spend money that would have gone into their pensions on subsidising retired parents to preserve their pension pots. There’s also a big question about whether these changes, which bring tax revenue forward, will create a revenue hole for a later government.”
Merging pensions and ISAs: marry in haste, repent at leisure?
“While harmonising pensions and ISAs on the ISA model would simplify the tax regime it would mark another huge shift for savers, employers, the pensions industry and the future economy. If it goes through, he will receive a huge short-term windfall - unless consumers start saving less. But how much more change can savers take before they lose confidence in the system altogether? Can the industry and employers adapt when they are still reeling from the Chancellor’s 2014 changes?
“Perhaps most importantly, there could be a risk to the future economy. A generation who save through Pension ISAs will pay no further tax once they retire, while making ever increasing demands on the healthcare system. The tax revenue from their contributions will have been long spent. The scale of change contemplated is on a par with the Thatcher government’s reform of the housing market, so it is important that the government is going to consult through a Green Paper rather than just driving the change through.”
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