Flat Rate 25% Pension Tax Relief On Its Way

Published / Last Updated on 24/11/2020

The Chancellor may announce in tomorrow's spending review a change in pensions tax relief to a flat rate of 25% and in-turn help the Government recoup some of the costs of Covid-19.  We think this unlikely and more likely in March's Budget but many are speculating it may be confirmed.

The speculated changes would mean basic rate taxpayers would receive a boost to their pension pots.

A basic taxpayer paying £100 a month into their defined contribution pension under the new flat rate of 25% tax relief would see this topped up to £133.33 an extra £8.33 than the current £125.00.

So, a 22-year-old earning £27,000 paying 4% could be better off by £21,000 in pension funds when they reach State pension age.

However, higher rate taxpayers would lose out, as their £100 currently increases to £166.66 the new flat rate would reduce this to £133.33 - losing 15% either via payroll deduction or self assessment tax return refunds.

So, a 35-year-old earning £60,000 and paying the same 4% could lose out by £85,000 or to maintain current retirement goals would need to initially contribute an extra £50.00 per month.


It is inevitable that tax relief changes are coming having been on the government's agenda ever since George Osborne was Chancellor but probably not tomorrow.

Explore our Site

Money MOT
T and C