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Flat-rate pension tax relief ruled out by government

Miniature man and woman sitting on a bench beside the coins and banknotesThe government has effectively ruled out major changes to pension tax relief in the forthcoming Budget, arguing that there is “no clear consensus” for fundamental reform.

In a report earlier this year, MPs on the Treasury committee suggested that current tax reliefs were not incentivising sufficient saving, and called on the government to consider whether the lifetime allowance should be replaced with a lower annual allowance or we should move to a flat rate of relief.

Responding to the committee today, the government has said that its consultation has shown no agreement on the path forward.

It had already consulted at the summer Budget in 2015 over whether pension tax relief reforms could strengthen incentives to save, but saw no consensus in a way to meet the key goals it set out then.

The response reads: “The government is also aware that any changes to the pensions tax relief regime could have significant impacts for pension schemes, employers and individuals. While the government keeps all taxes under review, no consensus for either incremental or more radical reform of pensions tax relief has emerged since the consultation in 2015”.

AJ Bell senior analyst Tom Selby says: “Ripping the roots from the pension tax system just as automatic enrolment is bedding in would have been a monumental gamble by Spreadsheet Phil.

“Fundamental reform as some have suggested – such as introducing a flat-rate of tax relief – would hit right into Conservative heartlands and risk causing a rebellion among backbench MPs already riled by the Brexit negotiations.”

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