NEW TAX RAID ON PENSIONS
Anger as retirement perks could be hit to plug Budget U-turn
A TAX raid on pensions to plug a £2billion Budget black hole should be scrapped, Philip Hammond has been warned.
Critics have reacted angrily after it was revealed that the Chancellor had identified pensions as “top of his list” to raise funds after his U-turn on national insurance increases.
It is understood the Treasury is considering a drastic cut to pension tax relief – ending generous breaks for those saving for retirement.
Former pensions minister Baroness Altmann warned the move could lead to a voter backlash.
She said: “You have to remember that George Osborne was very nervous about this because it affects core Conservative voters. It also potentially hits public sector workers so it can cause problems there. So the Chancellor really does need to tread very carefully with this.”
The UK Independence Party attacked the move
and called on the Chancellor to instead use the £12billion foreign aid budget to help fund care for the elderly.
The party’s pensions spokesman Andrew Charalambous said: “Rather than attacking hard-pressed pensioners and workers saving for a pension to pay for his own mistake, he should take it from the expanding foreign aid budget.”
Mr Hammond made the U-turn over increasing national insurance contributions for the self employed because it broke a Tory manifesto pledge not to raise national insurance, income tax or VAT.
The increase was intended to fund a social care package worth £2billion and now Mr Hammond needs to find the money elsewhere without increasing borrowing.
He cannot touch pensioner benefits or reverse the triplelock guarantee which ensures rises in the state pension but it is understood that Mr Hammond is considering cuts to tax relief on pension contributions.
Pension tax relief is an incentive scheme which means savers do not pay income tax they pay in based on contributions. This means that for every £1 basic rate taxpayers put in pensions the Government pays 20p back but higher rate taxpayers get up to 45p back.
A source close to Mr Hammond said: “That’s what is being talked about. What else is there? There isn’t much else. What else can you do? He’s not going to compromise the Government’s reputation on fiscal integrity and we’re not going to be borrowing more. That’s very clear.”
In total, Mr Hammond needs to raise £325million next year, £645million in 2019/20 and £1billion across the following two years.
Baroness Altmann said that the best way to help raise the money would be to reduce the threshold where pension tax relief applied from the first £40,000 to the UK average salary of £25,000.
She said: “I think this would claw back about £1billion which almost covers what he needs to find.”
She said that few people could afford to put £25,000 a year into a pension which meant a cut would affect relatively few people.
She pointed out that three quarters of pension relief goes to people on final salary pensions which are becoming rarer – but she said that Mr Hammond needed to consider radical reforms.
She said: “We need an overhaul of the system to encourage people to save for retirement. We don’t just want them to save for pensions but also the cost of social care which pensions simply will not cover.”
The Treasury declined to comment but a source said that “the implications, including on the public finances, will be set out in the Autumn Budget.”
The row comes amid suggestions that Prime Minister Theresa May has lost confidence in her Chancellor over the Budget and is preparing to replace him with Education Secretary Justine Greening.
FEARS have been raised that Philip Hammond is plotting a new tax raid on pensions. Slashing tax relief on pensions would be an unfair and destructive policy. How can the Government urge people to save sensibly for their retirement while at the same time clobbering those who actually do so?
A tax regime that hammers pensions and discourages people from saving will create huge problems for the future.
Already people are finding that their savings do not yield a decent income to sustain them during retirement. It is madness to do anything that will make this situation worse.