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Lib Dems promise flat-rate pension tax relief review

The Liberal Democrats have promised to embark on a review of plans to introduce a single rate of pensions tax relief.

The policy, unveiled today in the Lib Dem manifesto, commits the party to an investigation of plans long demanded by pensions minister Steve Webb.

The manifesto says: “We will establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be simpler and fairer and which would be set more generously than the current 20 per cent basic rate relief.”

In addition, the party has committed to pressing ahead with introduction of new pension freedoms in 2016, which will allow for the creation of a second hand annuity market.

It comes after both Labour and the Conservatives set out plans to cut pension tax incentives for high earners.

Labour has promised to introduce a new ceiling of £30,000 on tax free annual contributions to pensions, while both parties are seeking to limit tax relief available to those earning more than £150,000.



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Stop talking drivel (to use a polite word) Mr Clegg. Any reduction to the rate of relief below what the earner would otherwise pay in tax isn’t fair. Any rate of relief above what the earner would otherwise pay in tax will cost everybody else the difference and hinder reduction of the deficit. Bandying about terms such as simpler and fairer is a bit like the FCA claiming to be open and transparent.

    What we need is stability to the rules on pensions, not yet further meddling. Why can politicians never leave well alone, always instead looking to fix the precious few things that they haven’t yet broken?

  2. Not sure why reducing tax relief isn’t fair. There’s a number of reliefs that higher earners are restricted on. For once a politician is saying something vaguely sensible. Tax relief costs HMRC (and therefore all of us) around £35 billion pa, which is more than a third higher than 10 years ago. Around 55% of the cost goes to higher rate taxpayers, and 20% of the total goes to the top 1% of tax payers. So those on very high incomes are clearly maximising the pension contributions they can make in view of the tax relief.

    Bearing in mind the size of the deficit, having an extra £19 billion pa would make an enormous difference to the economy. People aren’t going to stop investing in pensions just because higher rate relief goes. Getting 20% tax relief will still be an incentive. And if say 30% is used, as Steve Webb has suggested in the past, then that could well encourage those who are not higher rate tax payers to increase their pension provision and be less reliant on State aid when retired.

    Whilst I agree it would be nice not to have yet another change, there’s clearly a case for sorting out tax relief.

  3. Why do we think you should get something for nothing? Why should someone paying no tax or tax at 20% be given more tax relief.

    You can’t keep hitting higher and additional rate tax payers, they are the ones paying the vast majority of the tax, so surely they are the ones who should enjoy the majority of the tax relief.

    Why do we have a limit of £40,000 for tax relievable contributions? It’s to ensure those paying the highest amounts of tax are limited in the tax relief they can enjoy.

    All this other nonsense (including the LTA) is just pandering to the thickos and trying to score political points.

  4. note to all politicians….STOP F****** MEDDLING!!

  5. I am not sure how targeting high earners is fair, sounds like discrimination to me.

    Everything I am hearing from politicians of all colours seems to be based on the redistribution of someone else’s wealth which is very communist if you ask me.

    What they are proposing is that high earners can’t build up a decent retirement fund due to the politics of envy.

    Notice how it is being proposed by those not affected by these proposals i.e. MP’s in a final salary pension scheme where they can build up substantially more in the pot without breaching the AA or LTA than someone in a money purchase scheme.

    If they proposed moving everyone in public sector schemes, which is one of the big reasons we need to raise more through tax, to money purchase arrangements I wonder how much support these proposals would get now

  6. All this positioning on pension makes me sick. Constantly banging on about social responsibility and sharing the pain of repayment of the debt.

    The flip side to Steve Webb’s view of why: should one person enjoy tax relief at 40% + when someone else only get 20%? is quite simple – because of the differing levels of tax we pay. Level the field, have one rate of tax!! Do away with the higher rates altogether. That way everyone would be free to allocate as much as they want to pension.

  7. Reducing tax relief won’t stop anyone building up a decent pension fund – if someone has £40,000 pa in loose change lying around, they can still pay it in!

  8. For the last 25 years we have been moving, following the Antipodean system, look at the Kiwi Saver. Whether was Platforms, auto enrolment or the pension freedoms, it’s all following their structure and there is broad agreement from the right and left.

    Bypassing the fall out from the Treasury changes currently released and looking further ahead there are fundamental changes afoot. The government worker in NZ receives a 3% contribution from the state. Somewhat reduced from the 25% odd equivalent here for the unfunded DB. Why was it accepted? Flexibility and actual money in the pot rather than a promise that research shows the young don’t believe will be there when they get to retirement.

    Whilst I am as hacked off as any by the political negativity on pensions, change is coming and the young today have a different view to the over 50’s when they/we were young. They are not joining the unions, they are not buying into collectivism, whether here or in Denmark. They have noticed the intergenerational transfer of wealth with an ageing demographic as in the mid 1980’s NZ did.

    The reduction of tax relief opens the door to greater flexibility as to when you can draw out funds which appeals to the younger. I don’t like the politics and the anti savings industry rhetoric but this is coming.

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