Hunt urged to avoid targeting pension perks

SAVINGS experts are urging Chancellor Jeremy Hunt not to slash government savings and pensions incentives as these are needed more than ever.

Those setting money aside for the future need encouragement, not seeing their retirement pots raided to plug Britain’s estimated £60billion black hole.

Yet constant rumours suggest Hunt and Prime Minister Rishi Sunak will target UK pensions in tomorrow’s autumn statement.

The pensions lifetime allowance, which imposes 55 per cent tax on larger pension pots, looks set to be frozen for an additional two years.

Tom Selby, head of retirement policy at AJ Bell, said this has been the subject of repeated attacks by successive Chancellors for a decade, putting a “cap on aspiration”. “It punishes people who enjoy strong investment performance, effectively acting as a disincentive,” he added.

Selby also warned that Hunt could even charge inheritance tax on unused pension pots.

“Currently, if you die before age 75, you can pass on funds IHT-free. If you die later, your beneficiaries will pay income tax on any withdrawals.”

He said charging IHT on pensions “would leave many feeling the Chancellor has pulled the rug from under their inheritance plans”.

PwC global head of pensions, Raj Mody, said it is also thought Hunt may cut tax relief on pension contributions for higher-rate taxpayers from today’s 40 per cent: “This might be cut to a flat rate for everyone, say 30 or even 20 per cent.”

This could save the Treasury £10billion a year, but Tom Evennett, UK&I family enterprise leader at EY, warned: “It may deter high earners from paying into pension pots.”

Hunt could even scrap the popular 25 per cent tax-free pension lump sum, in a move that would “attract the ire of pensioners”, Evennett warned.

Aegon pensions director Steven Cameron said Hunt faces a challenging budget as he battles to put the UK’s finances on a sound footing: “But millions of savers need to know their personal retirement plans are on a sound footing, too.”

He added: “We urge care in rushing into complex reforms, which could have damaging consequences longer term such as putting people off saving.”

Savers need more incentives than ever, as the cost of living crisis has made income increasingly scarce, he added.

Any tax raid could backfire as savers who contribute to private and workplace pensions are reducing their reliance on the state to fund their retirement.

Cameron added his voice to calls for Hunt to preserve the triple lock to “protect the many vulnerable individuals heavily reliant on the state pension”.

If Hunt does raid pensions he will continue an ignoble tradition dating back to 1997, when former Labour Chancellor Gordon Brown scrapped tax relief on pension firms’ dividends.

That had cost £118billion by 2014 and the total cost will be even greater today.