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Govt mulls flat-rate pension tax relief

The Treasury is considering whether to introduce a flat rate of pension tax relief to help fund the National Health Service.

According to The Times, the Treasury has started to investigate the flat-rate proposal and says it could raise an additional £4bn in revenues.

In June, the government promised to increase spending on the NHS by £20bn a year and a flat rate could help chancellor Philip Hammond raise money without breaching fiscal rules.

Tax relief is currently assigned in line with a person’s marginal rate of income tax, which distributes relief towards higher earners and costs the government around £40bn a year.

A flat rate of 28 per cent has been proposed by the Resolution Foundation to help millennials save for later life and the Royal Society of Arts has suggested a 30 per cent rate to help the self-employed.

Towards the end of June the government said it will “examine the process for payment of pensions tax relief” in response to concerns low-paid workers in net pay schemes are losing out.

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Comments

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  1. Trevor Harrington 9th July 2018 at 4:07 pm

    Instead of trying to be “all things to all men”, would it not be a better idea to limit the tax relief on pension contributions to 20%, and then start looking at restoring the state pension to a proper living wage (say £200 per week) from a proper retirement age (say 65), and for both males and females?

    This would be excellent for the economy, as most of the increased state pension would be spent that money in the “high street”.

    Higher earners, already have many tax concessions, and very many financial advantages, which the lower wage earners simply cannot aspire to in the first place.

    Also, any apparent loss of benefits to the higher earners, would be compensated to some degree by the increased state pension which they would also be entitled to. In any event, the current granting of higher rates of tax relief on pension contributions from higher earners, is completely indefensible when laid against the lack of pension benefits for lower earners, and their resultant pensioner poverty.

    Furthermore, any increased benefits in the state pension, would also assist with the provision of additional care in later life for our ageing population.

    An additional and very welcome effect would be that administering state pensions would be massively simplified, and substantial savings in the public sector could also be achieved.

    • The report that I read said that a flat rate of 25% was mooted. Anyway your suggestions are unnecessary. Leave those who are better off (and in the main are the wealth creators) alone. Just scrap AE and increase income tax by 5% and corporation tax by 3% (recognise the figures?) and scrap AE. That should provide a decent basic State Pension.

      • Income tax and corporation tax are both political footballs. Whilst the tendency towards compartmentalisation is over complicating matters – it does have the benefit of AE money belonging to the AE contributor. Which is not unimportant with for example; death benefits.

  2. Unless the proposal being considered is a “flat rate” of 20% on the lines of Trevor Harrington’s post, I can guarantee that it will actually cost more money, not generate extra revenue.
    The reason for this is that the amount of tax relief being given to higher-rate taxpayers continues to fall as more of them stop / reduce pension contributions due to Tapered Annual Allowance, Lifetime Allowance, and exhausting Carry Forward; whilst each year the amount given to basic-rate taxpayers balloons due to higher AE contribution rates and greater coverage.

  3. Fairness is a very subjective thing; what might seem fair to one person won’t seem fair to another. Is it fair that one person has to pay a different rate of tax to another?

    These proposals won’t hit high earners (who going forward are likely to be impacted by the tapered annual allowance) but middle earners who fall in between low and high earners and who are constantly being told they need to save more for retirement.

    This is purely a tax grab using the term ‘fairness’ and lets not kid ourselves it is anything else.

    • Indeed, I cannot remember the last time any politician talked about cutting taxes, which given that we are more taxed now than British people have ever been at any point in history seems a little odd.

      However I guess that’s what happens when even the supposedly right wing party swings towards left of centre policies.

  4. Robert Milligan 11th July 2018 at 11:28 am

    Why O why in 2018 do we need Government help in saving for our own retirement, surly by now with the LISA and ISA allowance’s, abolish pension tax relief, fund the NHS as required but make it more accountable by audit, personally I have had Private HC for the past thirty years in addition to the NHS,I also believe our NHS to be held in high esteem, We need to abolish the Pension’s industry and create a savings For Retirement culture in everyone, not just the 40% Tax Payer’s.

    • Read the latest findings on our much vaunted NHS – not very reassuring reading. It comes out as a very second rate service. I have unfortunately sampled healthcare (for minor injuries) in France, Spain and even Mauritius and can attest to their superior service and treatment.

      Unfortunately our NHS is a sacred cow and is akin to a religion. Until a dose of reality and pragmatism sets in it is unlikely to change and continue to be a money black hole.

      • Trevor Harrington 11th July 2018 at 6:11 pm

        Evening Harry,

        I agreed with your general direction, but would want to be more specific about the abysmal management and lack of motivational leadership within the NHS.

        In fact, It is tragic to see the hard work put in by most (certainly not all) of the lower levels – the workers if you will – which is then confounded by the so called managers, who lack any form of leadership potential, and simply spend “resources” as they love to refer to them, as though it were confetti.

        The old adage about “P— Ups” and breweries comes to mind.

        Where is Mauritius … is that near Wales ..

      • Indeed Harry, I do talk and have talked to a lot of NHS staff, varying from right at the top, to right at the bottom.

        In more than 20 years, I have yet to find one single one who doesn’t think the NHS is massively inefficient, or that vast sums are not wasted constantly.

        Ironically I suspect that most of the waste comes from politicians constantly wanting to change things and from vast amounts more middle and senior management than any private organisation could tolerate and stay in business.

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