Nearly five million workers could be forced to pay an additional £ 2,000 in taxes a year if the Treasury Department adopts aggressive pension tax relief reforms.
Up to £ 10 billion could be wiped away from retirement savings and diverted into the treasury, reducing retirement income for millions of savers, a report by the Pensions and Lifetime Savings Association warns. That would be the case if the government introduced flat-rate pension tax relief, the Commerce Bureau said.
The analysis, which calculated that workers could be worse off by £ 206,000 over the course of their lives, is the clearest indicator that the pension industry is preparing to fight radical reforms.
Chancellor Rishi Sunak has been considering a dramatic pension raid, as this newspaper previously reported, which would raise billions of pounds to repair public finances following the pandemic. About £ 40 billion a year is spent on pension tax relief – much of it going to public institutions.
Earlier this year, the government was scrutinized by the Treasury Committee, an influential group of bipartisan MPs, calling for an “urgent reform” of the approach to pension tax relief.
PLSA’s Nigel Peaple warned that abolishing higher-rate tax breaks could reduce retirees’ incomes by 22 percent. Currently, the tax break is paid at a person’s marginal tax rate, which should serve as an incentive for workers to put money aside for retirement.
But cutting the tax break to the base rate of 20 percent for everyone would result in many losers and few winners, Peaple said.
Those earning just below the higher threshold of currently £ 50,270 would pay between £ 12,000 and £ 119,000 in additional taxes or reduced pension contributions over their lifetime.