Tax relief on money paid into pensions is under threat in Chancellor Phillip Hammond’s Autumn Budget 2017, according to speculation in Westminster.
Rumours are rife that he is about to slash pension contribution relief for millions of high earners.
The move is expected to save the government money.
The latest official figures for 2015-16, released a few days ago, put the annual cost of giving pension savings a leg-up by refunding income tax paid on the cash at £13 billion.
And the figure is only expected to rise as the number of workers saving into workplace pensions has mushroomed over recent years to more than 11 million.
Pension saving bounces back
The money paid into pensions by retirement savers and their employers have bounced above pre-financial crisis levels of a decade ago for the first time.
The Treasury data showed £24.3 billion was paid into personal pensions during the year.
Chancellor George Osborne wanted to stop the relief in 2014, but was forced to drop his proposals after intervention from Tory MPs who were against the idea.
Hammond is thought to favour reviving the measure as most ordinary voters would be unaffected by axing the top rates of relief as they only apply to high earners.
The Budget is unlikely to see him scrap all the relief, but to impose a flat rate of between 20% – the current lowest rate – and 35%. The highest rates paid currently are 40/45%.
Significant cost saving
This way he could snatch back up to a third of the £13 billion of relief paid each year, which would add up to a significant cost-saving with little or no effect on pension saving for most workers paying into pensions.
Ministers and their staff often release key policy information without formal attribution to see gauge reaction to their proposals.
“Income tax relief is available on individual and employer contributions to registered pension schemes up to an annual allowance. Furthermore, employer contributions are not subject to either employer or employee NICs. Relief is available on individual contributions worth up to 100% of individuals’ earned income or £3,600, whichever is greater,” says the HMRC report Personal Pension Statistics.
