An overhaul of pension tax relief is highly likely in the Autumn Statement, according to news coming out of the Conservative Party Conference.
Chancellor Philip Hammond’s parliamentary private secretary John Glen, MP has said the Treasury would consider changes to pension tax relief before the end of this year.
Former chancellor George Osborne had planned to include changes to pension tax relief in his March budget, but it was dropped. Since then there has been speculation that the reforms would be included in the Autumn Statement.
Glen appears to have given the strongest hint yet that there pension tax relief is set to be reformed. When asked about it at the Conservative Party Conference he said change would fit into the Prime Minister’s plans.
“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,” he said.
“Because unless we can do that then how are we evidencing our serious intention to [do that].”
How it might change
[SPOTLIGHT] 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.”