Advisers have hit out at the Government’s “obsession” of tinkering with pension tax relief as reports suggest older workers could see their tax relief cut in the upcoming Budget.
Chancellor Philip Hammond will make his first Autumn Budget announcement on 22 November.
Reports suggest that Hammond is eyeing reforms to promote “intergenerational fairness” in the Budget package, including cutting national insurance contributions for workers in their 20s and 30s by making savings on pension tax relief.
Sources have told national news outlets that Hammond is considering slashing pension tax relief for older wage earners in the Budget.
Hammond is understood to be running ideas past his own MPs after facing criticism over the so-called “dementia tax” and having to scrap a planned rise in NICs for the self-employed earlier this year.
A source told the Telegraph that Hammond wanted to be “bold” in a plan to “restack the deck for the next generation”.
Another source said: “It is more of a question of rebalancing than just spending money. He is looking at things around regulation – at no cost to the Exchequer – or rebalancing.
“There is a recognition of a need to make an offer to appeal to younger voters in some way. That has been falsely focused on students and student finances. It is a much broader thing.”
No cuts, please
However, advisers are concerned that any cut to pension tax relief will make saving for retirement less attractive and contradicts the objectives of the auto-enrolment programme to encourage workplace saving.
Plan Money director Peter Chadborn says many of his clients are self-employed, and a cut to pension tax relief for older workers will impact their pension planning.
Chadborn says: “A lot of people do most of the funding for their retirement towards the end of their careers, particularly people running their own business. They can’t commit money to it earlier because they need it for cashflow and they can do a lot more strategic planning when they are older.”
He adds: “If they are cutting tax relief for those people it is a real hindrance and yet another measure that will discourage people from saving for retirement, which feels counterintuitive.”
Worldwide Financial Planning IFA Nick McBreen says he does not understand the Treasury’s “obsession” with reducing pension tax relief.
He says: “We have got a huge problem with the savings gap and the pension gap and yet we are hell-bent on removing one of the major levers that does encourage people and motivate people to invest and save for their futures.”
McBreen adds: “This is short-term housekeeping driven politically and it does not make sense.”
Cavendish Ware Wealth Management adviser Roy McLoughlin says cuts to pension tax relief could be potentially damaging to auto-enrolment.
He says: “On the one hand you are trying to encourage people to get involved in auto-enrolment and auto-enrolment is really working. One of the main attractions of why it works so well is tax relief. On the same hand [the Government is] saying they will cut it down.
He adds: “It contradicts the message that auto-enrolment has been delivering successfully so far, which is that everyone needs a pension.”
Both McBreen and McLoughlin are supportive of national insurance contributions being reduced for younger workers, however.
McBreen says any measure to alleviate the tax burden on young people will help them to invest and save for their future.
Chadborn says he is not convinced that the change would be worthwhile though.
He says: “The whole tax structure is complicated enough anyway. It is such a minor thing that it wouldn’t feel as though it is having much of an impact.”