Rumor has it that a government consultation will be launched tomorrow (March 23) to end tax breaks for higher pensions in an attempt to find a way to balance the books.
If so, the rumored consultation is expected to propose capping pension tax relief for those earning more than £ 50,000 to 20 percent.
The pension tax relief reform has run the rumor mill several times in recent years, but it has been suggested that the economic divide caused by Covid-19 eventually led to the much-speculated move.
Around £ 40 billion a year is spent on pension tax relief, with a large portion going to defined benefit (DB) schemes in the public sector.
According to AJ Bell, a member of the DB system who earns £ 50,000 could face a tax burden of £ 3,744 if the pension tax exemption is capped at 20 percent.
Andy Bell, CEO of AJ Bell, said that given the financial implications of the pandemic, it was “no surprise” that the tax breaks for the pension were now “firmly in the sights of the Chancellor”.
He added that while he could see why abolishing tax breaks for higher tax rate pensions might be “attractive” to the government, the reality is “fraught with complications”.
“The abolition of tax breaks with higher tax rates could create additional tax burdens for millions of ‘Central Britain’ workers who are politically toxic if people realize what it means to them,” continued Bell.
“There is a perception that this only affects the very rich, but anyone who is employed and earns more than £ 50,000 could be easily affected by receiving employer contributions to a DC (DC) scheme or being in a DB scheme is located.
“The impact would be most painful to people in public sector DB systems, and the sad truth is that this would also include frontline NHS and rescue workers who have worked so hard to keep the country through the Covid-19 Pandemic help.
“If the Treasury Department believes the anger the NHS doctors caused by the tapered annual allowance is bad, it will make it insignificant compared to the mutiny, and we will likely see if the tax breaks go for higher ones.” Pensions will be abolished altogether.
“Furthermore, despite the early success of automatic enrollment, the UK average retirement savings remain far too low.
“Successive chancellors’ preference to cut pension incentives and complicate the tax system could undermine these important reforms and discourage an entire generation from saving for their financial future.”
PensionBee, however, welcomed the rumored consultation and advocated a flat tax break of 25 to 30 percent.
“Tax breaks are a key incentive that encourages people to save efficiently towards retirement, and too many people continue to miss out on this key benefit,” said Romi Savova, CEO of PensionBee.
“Research shows that lower-income consumers, and women in particular, do not receive the tax benefits associated with saving pensions because they are currently below the property tax threshold. At the other end of the spectrum, the PensionBee analysis found that higher and top rate taxpayers are likely to miss out on unclaimed tax breaks of around £ 1 billion each year if they fail to complete their self-assessment.
“The dual system is too complex and radical reforms are long overdue. A universal tax rate will level the playing field for pensions and put an end to consumers in all missing tax brackets. “