19 Jan, 2016
Government set to slash pension tax relief
News reports out today claim that George Osborne is set to slash higher rates of pensions tax relief for those who pay higher rates of tax. This would mean that everyone received the same tax incentive for investing in a pension - between 25% and 33%.
At the moment, when you pay into a pension, you get tax relief at the same rate as the highest rate of tax you pay. Basic rate taxpayers get 20%, while those who payer higher rates of tax receive 40% or 45%. It means that effectively you are able to invest in a pension tax-free.
In future everyone could get the same flat rate - so basic rate taxpayers get their tax back - plus a bit more; while higher rate taxpayers no longer get all of their tax back.
The claims were made by the Financial Times, but have been considered highly likely for the past year. Osborne showed a clear intent to take an axe to pensions tax relief when he launched a consultation into it in the Budget eight months ago.
At the time he said the consultation would consider a vast range of options - including redesigning pensions as pension ISAS. However, simply cutting tax relief quickly emerged as the front-runner in responses to the consultation. As Aegon said in its response: "We favour a move to a single rate of tax relief on contributions, for the self-employed, employees and employers. This would be best delivered as a matched Government payment, focusing limited Government resources on incentivising those most in need of saving more for retirement."