25 Nov 2020
UK Chancellor Rishi Sunak’s proposed move to a 25% flat rate on pensions tax relief may leave a “big dent” in the pension pots of top earners.
A government source told The Times that the move was seen as "a matter of fairness" by Sunak, and he was "very attracted" to the flat rate proposal.
According to the Resolution Foundation think tank, the changes could save the government as much as £4bn per year.
Changes to the present system may be announced in the Chancellor’s spending review on Wednesday. However, they will likely not come into play until the March budget, and may face further delays next year, reports Pensions Age.
As it stands, basic rate taxpayers receive 20% tax relief, whilst higher rate taxpayers receive 40% tax relief and people on £150,000 or more per year receive 45% tax relief.
According to Aegon pensions director, Steven Cameron, the new system “is seen by many as a fairer way of sharing this government incentive across people of all earnings bands but would also likely produce a cost saving for the Treasury”.
He added: “It would be good news for basic rate taxpayers who’d receive a more generous bonus but would create a big dent in the future pension pots of higher and additional rate taxpayers unless they increased their contributions.”
deVere founder and CEO Nigel Green echoed the view that it will be higher earners who are going to be targeted: “Mr Sunak should resist the simple ‘soak-the-rich’ measures.
“He should not try to tax his way out of the downturn – instead he must drive long-term sustainable economic growth policies.”