Osborne Pension Tax Relief Cuts U Turn

Osborne Pension Tax Relief Cuts U Turn.

A report from the BBC (http://www.bbc.co.uk/news/uk-35732604) has suggested that the expected changes to pension tax relief that were due to be announced in the Budget on March 16 have been dropped.

There has been much speculation as to what potential changes would be introduced such as:

Withdrawal of higher rate pension tax relief

• A flat rate of pension tax relief ranging from 25% to 35% for all
• Scrapping of tax-free cash lump sums of 25% of the fund or reducing the amount of tax-free cash lump sum available
• A new pension ISA where no tax relief would be granted at all or at a much smaller rate with no tax payable when you come to retirement and start drawing your income

The BBC suggests that their source works within the Treasury but was not named. We have also seen suggestions from other pension experts that suggested the changes alone would cost in the order of £1.5 billion in changing systems without the costs of pension tax relief itself.

Comment

We believe this is a smokescreen. All too often there are many leaks from within government departments designed to persuade savers to not take action.

Many claim that it will be extremely difficult for pension companies to administer and increase or decrease in pension tax relief, we disagree. Already, most pension contributions have tax relief granted at source. Therefore to reduce tax relief to a basic rate of 20% overnight could easily be administered, as this would not involve any system changes whatsoever and in fact would reduce a burden on HMRC for granting higher rate tax relief.

In addition, there is already a Help to Buy ISA scheme in place which offers first-time buyers the ability to save with a 25% bonus from the government at the end. What is so different here? Additional bonuses could easily be added when a saver reaches retirement.

We still expect some news on the pensions front in the Budget.