Government rejects calls for ‘fundamental reform’ to pensions tax relief

It would appear that the government has poured cold water on any plans to reform the tax relief system for pension contributions in the near future, despite many calls to do so.

The government rejected calls from the Treasury Committee to fundamentally reform pensions tax relief after it said there was “no clear consensus” to do so.

In its response published on 12 October the government said that any changes to the regime could have “significant impacts for pension schemes, employers and individuals”.

In its July report, the Treasury Committee said that there is “widespread knowledge” that tax relief is not an “effective or well-targeted” incentive to saving and suggested “fundamental reform” or “incremental changes” such as introducing a flat rate of relief.

Despite this, the government said it consulted on reforming pensions tax relief at the time of the summer 2015 Budget, but found that there was not enough evidence to suggest it would have a difference in its four key principles, which included simplicity and transparency, personal responsibility, building on automatic enrolment and sustainability.

On the latter point, the government said any changes would not be in line with the government’s long- term fiscal strategy.

“The consultation showed there was no clear consensus on reforming pensions tax relief in a way that met the four principles set out above. The government is also aware that any changes to the pensions tax relief regime could have significant impacts for pension schemes, employers and individuals,” its response read.

“While the government keeps all taxes under review, no consensus for either incremental or more radical reform of pensions tax relief has emerged since the consultation in 2015.”

Despite the government response to the Committee, Chancellor Philip Hammond today said that pensions tax relief has become “eye-wateringly expensive”, according to a report in The Times.

Hammond made the comments while speaking at the International Monetary Fund’s annual conference in Bali, adding that nothing had yet been ruled out.

Pensions tax breaks could costs the Treasury up to £39bn a year, so we guess you can understand the financial reasons behind the stance.

It may therefore be the case that we don’t see any major changes in this year’s budget, however it is inevitable that changes will be made in the future. Ultimately any changes made now are set to impact upon a generation of pension savers, many of whom are only just beginning to save into a pension as a result of auto-enrolment.

We will be watching the Budget closely to see if the Chancellor follows through on his hints and makes cuts to pension tax breaks, and will advise accordingly if they affect you*.

Should you have any query or concern with regards to a pension scheme you may have, or how they may affect your retirement, please do not hesitate to contact us.

* Available to clients who subscribe to our Wealth Management and Financial Planning services.

THIS IS A FINANCIAL PROMOTION

Click here to visit our website

Connect with Active Chartered Financial Planners on Twitter  Facebook & LinkedIn

Get in Touch

If you would like to find out more about how we can help you, please give us a call or drop us an email.

Phone Us Email Us
Keep up to date

Sign up to our newsletter to keep up with all things Active.

Active Spirit

“Having been a client of Active for many many years and have always been given great advice and direction. I am now looked after by Andrew. He has given excellent advice and service, continuing on the great work this company has always offered me. Always cheerful and helpful; a great asset to Active. I have no problem recommending him to other people.

The gender wealth gap still prominent today

28th March 2024

According to a study by Handelsbanken Wealth & Asset Management, women hold an average of £100,000 less in financial assets than men. The study found that women typically hold £147,000…

Karl and Mike’s humanitarian mission to ‘forgotten’ Ukraine

27th February 2024

Our MD, Karl Pemberton signed up as ‘co-pilot’ back in January for local entrepreneur (and good friend) Mike Racz on his mercy-mission to Ukraine. Mike’s (originally solo) mission was launched…

Financial security in retirement tops list of clients’ 2024 concerns

26th February 2024

Regular contact with our clients is very important to us, so we were keen to hear their thoughts and opinions in our first client survey of 2024. Sent to 1085…