Pension Tax Relief Changes Coming?

The Chancellor’s Autumn Statement could include a major overhaul of the system of tax-relief on pensions. His parliamentary private secretary, John Glen, has told reporters that the Treasury will be considering changes before year-end. At the Conservative Party Conference, he said, “Given the emphasis that the new prime minister has placed on assisting working people then we need to be really clear that there needs to be some serious examination about how we can re-balance incentives towards the lower income strata of our society.” speculates about possible changes

‘One suggestion made by pension provider Hargreaves Landsown is to bring in an age-based tax relief system. It would mean the younger you are the greater tax relief you would receive on your pension contributions… “For a long time we favoured a flat rate tax relief because we thought it would be a fairer system than the current tax relief which is massively weighted to older, higher-rate earners,” says Tom McPhail, head of retirement policy at Hargreaves Lansdown. Now they have changed their stance and want a system that favours the young… “When do we want money to go into [pensions]? When you are young. Who doesn’t have the money to put into pension pots? The young. So, let’s weight the government incentive in favour of young people.”… Whether the Government will agree with McPhail remains to be seen. No-one at the Treasury is giving any indication of how pension tax relief may change if reforms are announced next month… However, yet more changes to the pension system won’t be welcomed by everyone in the industry… “Pension tax relief provides both an incentive to save and a boost to the value of those savings,” says Fiona Tait, pensions specialist at Royal London. “Just how effective an incentive it has been is the subject of considerable debate, but one thing is certain – it will only work well if people understand it. Royal London is strongly opposed to any further Government tinkering with pension tax relief…Age-related tax relief might provide an incentive for younger savers but could hinder understanding and appreciation of the tax incentives for the population as a whole.”’