Has the Government backed down on the planned pension raid?
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Last summer, George Osborne undertook yet another pensions review looking at the current rules around Tax relief allowed on pensions, with various options being put forward by the government in a consultation paper.
Within the current system, the Government rebates all the tax on your pension contributions, regardless of your income tax bracket (for more information on this, please read our previous Pensions article). However, under the new proposed system all workers paying into a pension would only receive a flat rate of tax relief – a figure as low as 20 per cent was being mooted.
These reforms were being considered as part of a major shake-up of the pension system which costs the Government £50billion a year. The savings could have allowed Mr Osborne to reduce the higher rate of income tax and clear the deficit.
However, it has now been announced that the new reforms have been dropped from Wednesday’s Budget amid concerns and pressure from all areas including his own Pension’s Minister Baroness Altmann.
She warned strongly against the changes, citing that it removes the incentives for pensioners to keep money in the pension pot, encouraging people to withdraw savings and spend them instead of keeping them for later in life.
“The freedom and choice reforms have put us in a place where people’s pensions can work well for them. However, tax is a natural brake on them spending their pension fund too soon,” Altmann told the Financial Times.
There was also fierce opposition from the business sector, with criticism from the Association of British Insurers (ABI) and many large private Pension providers, who said they would lower pension contributions by around a sixth.
This change in tack for the Chancellor is being seen as a way of not only trying to appease the more affluent voters during the Budget, but also to try and avoid any distraction from the EU Referendum campaign.
The new proposals had prompted disagreements within the Government and had threatened to further divide the party, which is already seeing a split over Europe.
But this is not to say any planned changes have been dropped altogether, just postponed. At Prosperity IFA, we will keep you updated on any changes made that could affect you and your pensions.
If you have questions on your current Pension arrangements then do give one of our advisors a call, we are fully qualified to give you advice and guidance on your Pension – whether it is from a personal or a business perspective.
Call us now on 01892 300 303.