Take advantage of your pension tax relief

not go ahead with any changes.

Fast-forward to Phillip Hammond becoming Chancellor and his post-Budget U-turn on National Insurance rises for self-employed workers. That sparked more talk that a pensions grab might be back on the table in a bid to fill the resulting £2 billion funding hole.

After all, there was wiggle room, given, in its formal response to the Osborne consultation, the Treasury had refrained from commenting on its intentions, therefore leaving the door open for possible reform at some point.

Now, in a surprise move, the issue looks as though it has been kicked into the long grass.

In February Andy Bell, chief executive of investment group AJ Bell, wrote to the Treasury to push for the creation of an independent commission on pension tax relief.

In response, he received a letter from Financial Secretary to the Treasury Jane Ellison on March 2, subsequently made public, which appeared to rule out any major re-think.

“As you are aware, an extensive consultation was conducted last year which considered changes to the pensions tax framework,” she noted. “This concluded that now is not the right time to undertake significant reform. Given this, the Government does not think it is necessary to convene an independent pensions commission at this time.”

Mr Bell said the letter seemed to indicate the Government would not be making any major alterations to pension tax relief before 2020.

“Hopefully the Treasury’s response gives people some comfort it will not subject pensions to more unnecessary uncertainty, at least during this Parliament,” he added.

“‘If the Government does turn its attention back to higher rate pensions tax relief, it will seriously undermine its credibility.”

Given the Budget mess – the Chancellor also effectively made a U-turn on his predecessor’s introduction of a £5,000 dividend allowance by reducing it to £2,000 – let us hope there is indeed no further tinkering with pension tax relief.

Anyone who can should fill their boots while they are able by fully utilising what is a generous tax break.

But check you are receiving the full amount to which you are entitled.

How much you get depends on your income tax bracket.

For a basic ratepayer to put £100 into their pension, they only need to make an £80 contribution. Higher ratepayers – those earning between £43,000 and £150,000 a year – do even better, only needing to pay £60 to achieve the same £100 of pension savings. The same applies for additional ratepayers.

The way tax relief is claimed depends on the type of pension you are saving into, operating on either a “net pay” or “relief at source” basis.

Under net pay, the scheme automatically claims back tax relief at the member’s highest rate of income tax.

With relief at source, only basic relief is claimed automatically but higher and additional ratepayers must write to HMRC to receive the extra relief due to them. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com