Will pension tax relief for savers be slashed in March Budget?
After delivering three separate Budgets last year, George Osborne, the Chancellor, is busy preparing for another.
Mr Osborne avoided dealing with the issue of pension relief at last year’s Autumn Statement, leaving the matter for this coming Budget. He may choose to attack pension tax relief, a move which could net the Treasury up to £50bn a year.
Under the current system, pension savings are topped up by the Government depending on what rate tax is paid. A higher earner gets £2 from the Government for every £3 saved – or 40 per cent relief, whereas a basic rate taxpayer gets £1 for every £4 saved – 20 per cent relief. But critics have said this system is unfair and relief should be paid at a flat-rate for all taxpayers at around 33 per cent. Tax relief for top rate earners is already set to fall from £40,000 to £10,000 a year from April whilst at the same time the lifetime allowance is to be cut to £1million from £1.25million. Due to these changes, many top earners have rushed to take advantage of benefits, investing money into pensions before the new rules come into effect. As the Treasury is set to publish a response to its pension tax consultation in this year’s Budget, many industry commentators are concerned Mr Osborne could go further in an effort to cut costs and cut middle income tax relief as well.
If this is the case, unlike the top rate taxpayers, middle income earners will not have had months of notice to take action.
Pension savers who are concerned that there could be changes made in the budget may wish to consider saving as much as they can into their pension this tax year, ideally before early March when the Budget will take place.
Some previous changes made to pension’s rules have taken effect on Budget day itself, which may leave no time for ‘top up’ payments before the rules change.
Although it is by no means guaranteed that these changes will be announced, many savers are choosing to make lump sum additions to their pension pots ahead of the budget, especially if these were already planned for later in the year.
If you think these possible changes might affect you and would like some advice, please contact Kevin Hilton, G+E Wealth Management Consultant on 01904 464100 to discuss your options.