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Think tank targets cuts to pensions tax relief and tax-free cash

Think tank The Fabian Society is targeting cuts to pensions tax relief and a reduction in the amount people can take in tax-free cash in order to fund extra spending in the next parliament.

The Fabian Commission on Future Spending Choices, chaired by former Treasury select committee chair Lord John McFall, published its final 2030 Vision report today.

The left-leaning think tank, closely associated with Labour, argues for a spending increase of 1 per cent a year, or £20bn extra, to be funded by better than forecast growth, higher taxes or slower deficit reduction.

It says higher taxes should be focused on the wealthy with cuts to pensions tax relief offering “large savings” which would only affect those on higher incomes.

It uses Pensions Policy Institute figures to show reducing pensions tax relief to 20 per cent for all, including those who pay higher rates of tax, would save £13bn to £16bn every year.

The paper also suggests the tax-free lump sum for pensioners could be capped at £36,000, which PPI figures show would save £2bn a year.

The commission says: “Sizeable savings could be made, for instance by reducing the tax foregone on highly regressive pension tax reliefs.

“Tax rises for higher income groups could make a significant contribution to paying for [£20bn more spending than currently planned] even if economic forecasts are not revised upwards.”

The Treasury has welcomed a public debate on pensions tax relief while Labour has hinted at policy changes and the Liberal Democrats have long favoured wholesale reforms.

In its wide-ranging paper, the Fabian Commission also calls on all parties to review universal pensioner benefits and the triple lock on state pensions.

It says: “Our work has shown that even if spending in the first two years of the next parliament is higher than current plans, tough choices will be required.

“We illustrate this with one possible combination of social security entitlements: means-testing the winter fuel payment, ending the ‘triple lock’ on the state pension, extending recent disability benefit reforms to older people and taxing certain disability benefits.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I know I shouldn’t feed the trolls but to address one point. “capping PCLS will save £2bn p.a.” When, how? Taking into account the undoubted disincentive effect this will have on saving. Over the long tail of this proposal, what would be the effect of the extra demand place on the pension guarantee and the pension credit by individuals that did not make private provision. Let alone the fact that they have insufficient funds to cover long term care costs so will also fall on the taxpayer.

    I earn my living by thinking about these practical consequences of not planning for these eventualities. A lot of thinktanks evidently do not.

  2. The Fabian Society is a British socialist organisation.

    Nuff said

  3. Scrap pensions altogether !!!! and have a super ISA (with no contribution limits)
    Lets just stop pushing this particular pile of poo around, pick it up bin it and move on !!!!

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