Hammond ponders easy money in pensions raid

likely produce an outcry. The fuel duty freeze has been confirmed, while the Government has previously been forced to cancel plans to increase National Insurance contributions.

Pundits are pointing to another assault on pensions as the “easy” way out.

After all, in 2016/17, the cost to the taxpayer of income tax and National Insurance Contributions relief on pensions was around £41 billion.

Indeed, speaking at the International Monetary Fund annual meeting in Bali earlier this month, Mr Hammond maintained pension tax breaks had become “eye-wateringly expensive”, a comment which many took to mean a pensions hit was a racing certainty. Yet pensions are emotive. Gordon Brown’s £10 billon-a-year “tax grab” back in 1997 destabilised what was considered one of the world’s best pensions systems, and it has taken the years since to restore some confidence – the Government’s successful workplace pension initiative being the flagship for getting people saving again.

Anything that would threaten this progress would be potentially disastrous.

Especially as pensions require a long-term approach and since 2010 there have already been six separate cuts – three to the lifetime limit on pension pots which can be accrued with the benefit of tax relief, and three to the annual amount which can be contributed.

Tom McPhail, head of policy at Hargreaves Lansdown, told YourMoney.com: “There are plenty of ways the Chancellor can raid our pensions.

“His ideal formula would be something which is easy to implement, doesn’t upset many people, raises lots of money and doesn’t seriously erode the long-term retirement savings system.”

Mr McPhail listed the following five scenarios:

Reduce the Annual Allowance for all pension savers. “Would mostly affect higher earners. If it was cut from £40,000 to £35,000, many would see this as a bullet dodged. But if it were cut to £20,000, he’d upset an awful lot of people.”

Reduce the Tapered Annual Allowance threshold: “This is targeted at higher earners – those with incomes over £150,000. The Chancellor could cut this to perhaps £125,000 and there’d be little sympathy for the hundreds of thousands affected by it.”

Final salary scheme calculations: “Defined Benefit pension scheme members receive more generous pension limits than those available to members of Money Purchase pension schemes.”

Scrap higher rate tax relief or move to a flat rate of relief : “It could raise quite a lot of money (estimates are of around £4 billion a year), and many agree the present system of paying the most tax relief to the highest earners ‘looks a bit wrong’. ”

Reduce or scrap the tax free lump sum allowance: “The tax free lump sum, usually 25 per cent of accumulated pension savings, makes no sense but everyone loves it.”

Jon Greer, head of retirement policy at Quilter, expects more tinkering.

“The idea of fundamental reform is unlikely while Treasury desks are battling the beast of Brexit,” he said. Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners,

based in Solihull. Email: tlaw@eastcotewealth.co.uk

The views expressed in this article should not be construed as financial advice