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Industry backs Govt decision on post-75 pensions tax relief

The Government has dropped plans to extend tax relief to pension contributions made by people over the age of 75.

The Government has dropped plans to extend tax relief to pension contributions made by people over the age of 75, the Autumn Statement reveals.

As part of the March Budget, the Government said it would be exploring “with interested parties whether those tax rules that prevent individuals aged 75 and over from claiming tax relief on their pension contributions should be amended or abolished”.

There had been growing industry calls to reflect changing work patterns and life expectancy by doing away with using age 75 as a significant cut off point in pensions legislation.

But now the Government has confirmed following an “informal consultation” the age limit at which tax relief can be claimed on pension contributions “will remain at age 75”.

Pension experts say despite 75 becoming increasingly irrelevant, the Government will be concerned about people exploiting the pensions recycling loophole created by the Budget.

L&G pensions strategy director Adrian Boulding says policymakers have a hard job helping older workers’ with sincere plans for saving post-75 and at the same time attempting to stem the risk of tax avoidance.

He says: “The difficulty that the Treasury face is you’ve got two kinds of over-75 year-olds. You’ve got the wealthy ones who would shelter a bit more money from tax if the 75 rule was abolished, and the Government don’t want to be doing that because some people will be drawing their pension and putting it back in again. We’ve had those issues about recycling.

“But equally we’ve got people over 75 who genuinely want to save. We’ve got supermarket business and they employ older people – and they want to join. But at the moment they have to be told no I’m sorry you can’t join.

“How does the Government create a rule that allows bona fide savers in but excludes those readers of The Daily Telegraph who find another loophole to avoid tax?”

Concerns have been raised that the new Budget freedoms provide an incentive for people to ‘wash’ their money through pension schemes to benefit from tax relief and avoid NICs and income tax.

Fidelity World Investment retirement director Alan Higham says the Government consultation did not receive much support for extending tax relief.

He says: “You’ve got to draw a line somewhere. You’ve got to say people have reached an age where we no longer wish to incentivise them to save more for old age. Especially with the death tax changes, you’ve got to have a line somewhere. I think 75 is fair enough at the moment.”

Aviva head of pensions policy John Lawson says he is not surprised by the lack of action of the part of the Government. He says he expects the issue to be re-examined as part of a broader review of the pensions tax relief system.

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Adviser views

Carl Lamb, managing director, Almary Green

It makes complete sense to leave it where it is, given the Government is trying to save money in the years of austerity. You have to draw a line somewhere and I don’t have a problem that we keep it at 75. It doesn’t make economic sense to change and only a small minority would actually benefit if it was scrapped.

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Ray Tammam, IFA, Fairstone Financial Management

It’s a disappointing decision as more people are still working past that age. Life expectancy is increasing all the time, so I hope it’s something that will be reviewed very quickly to at least move in line with life expectancy. I think there would be take-up, I’d have clients interested in still getting tax relief. It’s not going to cost the Government a huge amount of money. Lots of the recent pension changes have been positive, and this looks a bit negative.

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