3 WAYS TO RUIN RETIREMENT
TAX relief is a refund of all the income tax you paid on all contributions into pensions up to a value of £40,000 per year.
The rebate is the Government’s incentive to help you boost your pension.
Under the current system, it costs a basic-rate taxpayer 80p to put £1 in a pension, a higher-rate taxpayer 60p and a top-rate taxpayer 55p.
Workers can amass a fund worth up to £1.25 million over a lifetime and still receive this perk — although this limit will fall to £1 million from April.
However, the current system costs £34.3 billion a year and the Chancellor is looking to make it cheaper.
There are three main options on the table . . .
OPTION 1: A SINGLE RATE
UNDER a flat-rate of tax relief savers would receive a fixed refund of between 20 pc and 30 pc of what they put in. If the rate was fixed at more than 20 pc, it would provide a boost to basic-rate taxpayers, who would get more than they do today.
But higher-rate taxpayers would lose out. Instead of the £40 for every £60 they pay in, they might receive £25 for every £75 (25 pc) or £20 for every £80 (20 pc). And there would be nothing to stop future governments cutting the rate again and again.
OPTION 2: THE PENSION ISA
THE second option is to treat pensions like an Isa. All savers would pay tax on money going into pensions but withdrawals would be tax-free in retirement.
The Government might offer a top up of between 10 pc and 30 pc of funds going into pensions. This might benefit basic-rate taxpayers but would hit middle-earners. Again, there is nothing to stop future governments taxing savers in retirement.
OPTION 3: CUT ALLOWANCES
THE final option is cutting the amount savers can put into a pension every year or in total.
From April, savers can put away £40,000 a year and £1 million over a lifetime. Experts believe the Treasury is considering slashing these levels — possibly to £20,000 and £750,000 respectively.
Middle-income savers who have squirrelled away cash, or those who want to put away a large amount before retirement will bear the brunt.