Pension: Jeremy Hunt may ‘come for pensions next’ – tax relief could be at risk | Personal Finance | Finance
Pension tax relief is greatly treasured by millions of savers as a benefit of saving in this way. While many were fearful this could be targeted in Mr Hunt’s Autumn Statement, pension emerged unscathed.
The state pension triple lock was retained to the joy of millions of older people, and there was no move on pension tax relief.
However, an expert has said pension policy is likely to be influenced by whether the Treasury needs to raise tax revenue further in order to shore up public finances.
With an uncertain economic climate continuing to linger, one expert has suggested it may not be long until pensions and tax relief are back on the agenda.
Gary Smith, financial planning director at Evelyn Partners, said: “The Office for Budget Responsibility’s next outlook for the public finances will be key in determining whether pensions remain safe – from a tax crackdown on private pension saving, or modifications to the future state pension promise, or both.
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The expert continued: “Instead, the Treasury could just reduce the amount of savings that can benefit from tax relief by reducing the annual pension allowance that currently stands frozen at a gross amount of £40,000 for most people.
“Restricting tax-benefiting pension contributions to say £20,000 would be perceived as affecting only the well-paid who could afford to save such amounts.
“But with the duration and costs of retirement rising year by year, such a cull to the annual limit will put a cap on pension saving for many middle-to-higher-income professionals at a time when Governments have been keen to encourage private pension saving.”
Those who pay into their pension will see some of the money that would have gone to the Government as tax go towards boosting their pension instead.
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This tax relief helps reduce the amount of tax Britons ultimately pay, and to provide a helping hand with saving for the future.
At present, tax relief is given based on the rate of income tax a person pays.
However, there are limitations, such as the Lifetime Allowance which caps the amount a person can save across their lifetime tax-free without being subject to a potential 55 percent charge.
Mr Smith acknowledged there may be no such steps taken, however, they remain attractive.
He added: “The Treasury will be watching closely as savers are bound, quite sensibly, to start putting more into pensions to protect their incomes and savings from tax.
“This in turn could limit the revenue-raising efficacy of Hunt’s tax grab.
“It would leave pensions standing exposed and vulnerable as one of the last tax ‘safe-havens’.”
