Chancellor’s U-turn on pension reform
The weekend announcement that tax-relief on pensions will not be changed in the March Budget is likely to be just a temporary stay of execution
Despite a number of reports that David Cameron had urged the Chancellor to ‘play it safe’ over pension tax relief reform rather than risk the wrath of the Conservative backbenches in the run up to the European referendum, the announcement over the weekend was still a shock.
It had widely been expected the Chancellor would move against higher rate tax relief with further public spending cuts needed. A switch to 25% flat rate tax relief would have redistributed relief from higher rate to basic rate taxpayers and save the Treasury an estimated £6 billion a year. Tempting for a Chancellor looking for savings.
Whilst the threat of radical change to pension tax relief appears to have receded for now, our view is that we haven’t heard the last of this. The government spends £50 billion a year on pension tax relief and the desire to reduce this hasn’t gone away.
It is also worth noting that the announcement only stated that tax relief wouldn’t be altered. He could still make an announcement on details such as salary sacrifice and high earners will continue to be impacted by the reduction of the annual allowance.
We would still urge clients to make the most of the current system while it is still available. Further changes should still be expected in the life of this Parliament.
About the author: Katharine Lindley
Katharine started her career in 1998 in PwC’s financial planning team. She joined EQ Investors from Tilney Bestinvest where she worked closely with investment managers and professional advisers to deliver cohesive financial plans for clients.
Katharine’s areas of expertise are wealth management, retirement planning and pensions, investments, estate planning and tax planning. She is a Chartered Financial Planner, Certified Financial Planner, Taxation Technician Fellow and Chartered Tax Adviser.
Away from the office, Katharine enjoys spending time with family, gardening, theatre and is learning the piano after a 30 year break. Katharine is a charitable trustee of the Association of Taxation Technicians and represents them on technical pension discussions with HMRC and HM Treasury.
