Government plans to merge income tax and national insurance could eventually see higher rate tax relief on pension contributions scrapped, Skandia says.
In yesterday’s Budget announcement, Chancellor George Osborne (pictured) confirmed the Government will consult on combining the income tax and National Insurance tax regimes. However, he said the complexity of the change means it will take years to fully implement.
Skandia says if the two taxes are consolidated into income tax rates then a basic rate tax payer would be eligible for pension tax relief of 32 per cent rather than 20 per cent under the current rules.
To fund this, the platform operator says Government could limit tax relief on all pension contributions to 32 per cent. Higher rate taxpayers currently benefit from tax relief of up to 50 per cent on pension contributions.
Skandia pensions expert Adrian Walker says: “The removal of higher rate tax relief on pension contributions has been rumoured for as long time and a merger of income tax and NI might prove to be the tipping point.
“This would be a poor outcome for investors who need as much incentive as possible to save for their retirement and i’m sure the industry will be campaigning on their behalf during the consultation period.”