UK govt planning pension tax relief cut

The UK government is reportedly planning to cut the pension tax relief rate available to high-earning pension savers in its 11 March Budget.

According to the Financial Times (FT), Chancellor Sajid Javid is considering cutting tax relief on pension contributions for those earning £50,000 or more per year from 40 per cent to 20 per cent.

The move could potentially raise more than an extra £10bn a year for the government. Currently, pension savers receive tax relief at the same rate as their income tax rate.

People close to the Chancellor reportedly said that he was committed to making the system “fair and efficient” and the FT said that Treasury insiders had confirmed that he was assessing options that would hit higher earners and ease pressure on public finances.

AJ Bell senior analyst, Tom Selby, warned that constant speculation could hurt confidence in the tax system.

He commented: “Barely a Budget goes by that the Treasury isn’t rumoured to be eyeing radical pension tax relief reform.

“This constant speculation risks altering investor behaviour and damaging confidence in the stability of the system. Ironically, in the short-term such stories will inevitably cost the Exchequer cash as savers pile into pensions to make the most of tax relief while it is still there.

“If there are to be reforms to the pension tax framework, they must not risk harming the fragile savings culture that is being developed in the UK.

“We believe the focus at the moment should be improving the existing system rather than burning the whole edifice to the ground.”

The government is making moves to reform pension tax to try and meet its manifesto promise of removing “arbitrary tax advantages for the wealthiest in society”.

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