Pension saving has recently been impacted by a Budget announcement which saw the lifetime allowance frozen until 2026. The move was considered to be a “stealth” tax grab, with more people likely to gradually fall over the threshold as years go by, creating an opportunity for the Treasury to rake in large sums of money. With the Government’s first Tax Day taking place today, experts have signalled potential changes when it comes to saving towards retirement.
In every Budget, speculation usually grows about a potential tax grab on pension savers – who get significant relief through saving.
Currently, tax relief is based on a person’s rate of income tax – with the bands set at 20 percent, 40 percent and 45 percent, depending on how much someone earns.
However, suggestions even before the Budget put forward that the Chancellor could enact a “flat rate” of pension tax relief.
This could be enacted in a number of ways, but perhaps the most drastic would be setting the rate at 20 percent for all.
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“If any news does arrive on pension tax relief, it is likely to be only of a consultation into possible changes – reforms would still face several hurdles before coming into force.
“Yet it still makes sense for higher-rate taxpayers to review their pension contributions to ensure they make the most of the system as it stands.”
The Government is making its latest tax announcements separately to the Budget, but all will be made today.
Jesse Norman, Financial Secretary to the Treasury added: “This is in order to give a range of important but less high profile measures greater visibility, and greater scope for scrutiny.”
It is thought a number of important taxation issues will be addressed within the document, which will lay out how changes could be enacted in the future.
Also commenting on the Chancellor’s potential decisions was Romi Savova, CEO at PensionBee.
She said: “The pressure is still on for the Chancellor to deliver a plan that ‘balances the public finances’ following the pandemic.
“A consultation on pension tax relief is rumoured to be back on the table, which PensionBee welcomes.
“We are in favour of a flat rate 25-30 percent pension tax relief, rather than the system we have now which tops up individual pension contributions based on the saver’s ‘marginal’ income tax rate.
“Tax relief is a vital incentive that encourages people to save efficiently towards their retirement and too many people continue to miss out on this crucial benefit.
“The dual system is too complex and radical reform is long overdue.
“A universal rate will level the pensions playing field and put a stop to consumers across all tax brackets missing out.”
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