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Select committee chair wants high-rate relief ditched

The chair of the work and pensions select committee has called for higher-rate pension tax relief to be scrapped.

In an interview with Money Marketing, Labour MP Anne Begg says the move would be preferable to the Government’s plan to cut the annual pension allowance from £255,000 to £50,000 while keeping tax relief at the full marginal rate of up to 50 per cent.

Aberdeen South MP Begg says the call is a personal view and does not necessarily reflect the opinion of the committee.

She says: “In light of the economic situation, should we have been looking at you only get tax relief at a basic rate? Yes, we probably should have been. That probably would have been a more understandable way of dealing with it rather than trying to cap what goes into the pension pot.”

Begg also warned that a single universal pension of the type proposed this week risks alienating people who would have received more through a combination of state pension payments.

She says: “Unless you tie the middle classes into a welfare system, then why should they pay for it? There is a superficial attractiveness of this single pension but I am not sure people are ready to give up the idea of the contributory principle.”

Pension Transfer Solutions managing director Carl Melvin says her comments are likely to be politically motivated and ignore the fact that many people would pay higher-rate tax when they get their pension. He says: “Does she have any evidence to demonstrate this would be a better option? I suspect she has not.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. I agree. The system needs to be made simpler and I believe that anyone eligible to invest in a UK pension plan should be able to do so for basic tax relief on contributions upto their marginal Higher Rate Threshold and no tax relief thereafter. Together with this the Treasury could then remove all taxation on invested pension funds.

  2. Anonymous – no higher rate tax relief? You are waving goodbye to any further investment in pensions from the people most likely to afford and want to contribute toward them. ISA’s will become the vehicle of choice for long term savings. Crazy suggestion.

  3. You see what everyone forgets is that a pension scheme member gets tax relief on money paid into the scheme and then pays tax at his/her marginal rate when they take their pension.
    There is no magic, no free gift from the government (apart from the tax free lump sum and I wouldn’t count on that much longer).
    Nobody in their right mind is going to pay money into a pension scheme and tie it up in red tape and expenses for years if the deal is that they pay 80p in the £ to put money in and only get 60p in the £ when they take it out. Simples!

  4. Philosophically I agree with the removal of higher rate relief, but I think the practical implications would be too big and too negative. Think of a higher rate taxpayer in a final salary scheme who was then confronted with a potentially sizeable tax bill (payable from net take home pay) for their final salary accrual. Nothing wrong with that in terms of fairness (in my book), but it would just seem crazy for the government to make a change that would probably kill off DB schemes.

  5. Dear John Lenford
    I don’t feel this is as big a deal as you think. It would be a fairly simple process to apply only basic rate tax to pension annuities and all income paid out in drawdown plans.
    The argument over ISA’s, I don’t get, it is important to use all tax efficient saving methods and any adviser who will only invest into pension schemes is preventing short term access to funds and other tax benefits that derive from ISA’s.
    The reality is taxation and there just is not enough retention of tax by the state. Yes let’s fight the corner, but also be realistic – we are all in this together.
    NO that is not a comment from Tory Central Office.

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