Pension: The three ways Rishi Sunak may be attacking high earners and their pensions

Pensions ‘shouldn’t be a government piggy bank’ says Altmann

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Pension saving is an endeavour often undertaken years in advance by Britons who want to make sure they have enough to see them through retirement. Regularly putting away funds into a workplace and private pension is seen as a good way of creating financial security later down the line. But many Britons may be nervous about the consequences for their pension following COVID-19.

Reports from The Telegraph have suggested the Treasury could be planning a “tax raid” on pensions this coming autumn.

Such a measure, confirmed to the paper by Whitehall sources, would be an effort to rake back some of the cash spent on helping people throughout the pandemic.

So far, there have been three reported measures the Chancellor is currently considering when it comes to pensions.

The first relates to pension tax relief, which is often treasured as a policy which incentivises people to save into a pension.

At present, tax relief is set at 20 percent for basic rate taxpayers, increasing to 40 percent for higher earners.

However, reports have suggested the Treasury is now considering a flat rate of tax relief for all.

This could mean higher earners miss out on the additional tax relief they currently receive, and many may feel slighted by the prospect.

Another option would relate to employer contributions when it comes to workplace pensions.

These could be hit with some form of tax increase, which could be advantageous for the Treasury.

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Finally, the third choice relates to the Pension Lifetime Allowance, which was already announced as frozen in the Chancellor’s latest Budget.

The Lifetime Allowance is a limit on the amount of pension benefit which can be drawn from pension schemes, paid without triggering an additional tax charge.

At present, the Lifetime Allowance stands at £1,073,100, and under Budget announcements, this is a planned fix until April 2026.

However, the reports have suggested the Treasury is considering lowering this sum to either £800,000 or £900,000.

This is likely to hit higher earners, and those with a significant pension pot, but individuals should also be aware of compound interest, which could see their pot dragged into the tax net if such a policy were to be implemented.

A senior Government source spoke to the Telegraph about the proposals, stating: “Our job is to keep people out of poverty, not to enrich the middle classes.”

It is reportedly believed any changes to pensions would be included in the Government’s scheduled Autumn Statement this November. 

But there has been much debate about what these changes could mean for Britons at large.

Steven Cameron, Pensions Director at Aegon, has suggested an “intergenerational storm” could be created by pension tweaks.

He said: “Once again the prospect of reforming pension tax relief for higher earners is being floated as a means to restore holes in the government’s finances.

“What’s different this time is that the state pension triple lock is also firmly in the spotlight with recent earnings anomalies likely to grant current state pensioners a bumper increase next April. 

“Reducing the savings incentive for many higher earners, while hiking the state pension could end up stoking intergenerational tensions and does raise questions about fairness.

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“On the broader point about tax relief, we aren’t against the principle of a flat rate but any reform would need to be carefully thought through and also balanced against intergenerational considerations.

“There are broader challenges to reform of tax relief, as they would be highly complex to implement, particularly for defined benefit schemes. This means individuals and pension schemes would need sufficient time to adapt and we’d encourage the government to take a long-term view on the implications any changes.”

And Tom Selby, senior analyst at AJ Bell, added: “Given the parlous state of the UK’s finances, further speculation about the future of all areas of Government spending – including retirement savings incentives – was inevitable.

“However, all three of the pension tax reforms apparently in the Chancellor’s sights would be hugely risky, hitting directly at heartland Conservative voters and undermining the foundations being laid by automatic enrolment.

“Introducing a flat-rate of pension tax relief, an idea often touted by think-tanks, would present genuine practical challenges and would likely result in tax rises for public sector workers in defined benefit schemes, including many of the NHS staff who have been rightly praised as heroes during the pandemic.

“The lifetime allowance has already been cut to the bare bones, while employers would likely be furious if the Government increased their pension costs just as many attempt to recover from a nightmare year.

“Any further reforms – and in particular cuts in pension tax relief – need to be mindful of the impact on savings incentive over decades.” has contacted the Treasury for comment. 

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