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Pension tax relief back on table after NICs u-turn

Chancellor Philip Hammond is said to be favouring a cut in the annual pension allowance over a flat rate system as pension tax relief reform appears to be back on the table.

Pensions are in the firing line after the Government dropped its planned rise to national insurance contributions for the self-employed last week, and needs to find other ways to raise the £2bn in revenue it would have generated.

According to a report in the Sunday Times, Treasury officials will stick to commitments not to increase borrowing, and see few other options than hitting the £25bn in tax reliefs on pension savings the Government gave out last year.

A source close to Hammond told the paper: “That’s what is being talked about. What else is there? There isn’t much else. What else can you do? He’s not going to compromise the government’s reputation on fiscal integrity and we’re not going to be borrowing more. That’s very clear.”

While higher earners do receive greater tax relief on contributions than lower earners, Treasury sources said that that moving to a flat rate of pension tax relief would be seen as an attack on the middle classes.

As a result, Hammond is said to be leaning towards decreasing the annual allowance from £40,000 to either £35,000 or £30,000, and is less likely to look at the lifetime allowance.

Cutting the annual allowance would add to the Government’s previous cut in 2014 and the taper for high earners in 2016.

Aegon pensions director Steven Cameron says: “In the face of a U-turn on NI, the Chancellor may view pension tax relief as a soft target to balance the government books. Doing so might paper over a crack but risks undermining the country’s long-term savings framework. Barely a week goes by without reports of the increasing strain being placed on our social care system. If there’s limited incentive to save for old age, the government will find that a saving now will be met with bigger costs later as fewer and fewer people are able to meet these costs themselves.”

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Government he speak with forked tongue – Kimo Sabe.

    “We want to encourage saving. We insist you contribute into Auto Enrolment”

    But on the other hand they seem to be doing their best to discourage savings and thrift. Meddle with tax relief and that truly will be the end of pensions. What next? Dismantling the ISA tax regime?

  2. There really is a limit on how many times you can paper over the cracks
    The Ni increase for S/employed IMHO was sound and justified ……

    But now Peter, must be robbed to pay Paul……. time to bring our tax system into the 21st century, but I fear like so many things that are not fit for purpose, it will be fudged, re-fudged over and over again …..

  3. A better way for Mr Hammond to reduce the budget deficit is tackle the rise in professional landlords and reduce their tax subsidy on BTL mortgages. I would be happy to allow tax relief for borrowing on new builds to rent but just to buy existing housing to rent which pushes up house prices should be curtailed as it stops the majority of young people being able to purchase. There will be still plenty of property to rent as immigaration and student numbers are likely to fall dramatically over the next few years.

    The previous Chancellor after a lot of lobbying cut the tax subsidy on BTL mortgages to amateur landlords which will probably save over £2 billion in the next financial year and is likely save in excess of £5 billion a year after 2020. Many highly geared landlords however are likely to reduce their property portfolios over the next 4 or 5 years as taxation starts to bite into their profits or switch and become professional landlords by setting up a limited company. A further £5 billion a year could probably be saved by the Exchequer as the tax subsidy on BTL mortgages is currently in excess of £10 billion a year.

    The Banks would be terrified of this as it will badly affect their balance sheets but it would remove a lot of risk from these institutions and get them to support the wider economy to a greater extent that will be important post Brexit. In addition it will greatly assist a generation of young people who cannot currently get onto the “housing ladder”.

    A large reduction in tax subsidies to a few hundred thousand professional landlords is a far more effective way to balance the budget than discouraging millions of people to save for their retirement and be a future burden on the State. It will also allow for a much fairer society and create a new generation of Tory voters!

  4. Maybe a case of being careful what you wish for – the potential sources of revenue are not unlimited, so removing one only means another must be found.

    The problem was not that the increase in NIC was not entirely sound and justified, but rather that it offended against a really stupid campaign pledge.

  5. The solution is simple reduce the amount spent on Foreign aid from current £12billion to £10 million . Job Done!

    • Indeed Roger, never fails to amaze me how this money is “ringfenced” and protected no matter what, despite the fact the in effect the government is stealing from us via tax, to give it away to other people.

      Why on earth does a tax payer need the governments help to donate to charity. Except that I will bet that the vast majority of “foreign aid” is how politicians and un-elected bureaucrats get rich.

  6. How about scrapping the MPs pension scheme? That’ll save some money!

  7. The government is constrained by its manifesto commitments for this parliament. It should turn this to its advantage. Stop all taxation change for two years and spend the time consulting and building some consensus on a root and branch overhaul of taxation and national insurance. This plan should aim to address the needs for health, social care and education and skills investment for the next decade and post Brexit. The proper balance of pensions vs ISAs; pension contribution limits, reliefs & LTA; employment vs self-employment vs “worker”; affordable property vs wealth in property; intergenerational fairness versus handing on family wealth; etc.

  8. Well it’s easier than tackiling the impossible… namely looking more closely at how budgets are spent rather than apportioned! A proper business would be doing this as a matter of course, but I guess it’s too big a task for government.

  9. It appears that pension tax relief will disappear altogether eventually. This chancellor is such a blunt instrument, he is so obviously trying to fill the empty coffers. Why doesn’t he scrap the life time allowance, yes bay all means limit the amount of contribution that receives tax relief, but allow people to put in as much as they like in a tax free environment. Simple really but then as chancellor whilst you have taken away some tax Releif by reducing relievable contribution, you have given back the ability to build a pension fund to be as large as is possible. Without screwing it up and complicating the issue with ISAs.

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