Rising fears of a pensions tax relief cut

PENSION companies are warning Chancellor Rishi Sunak against targeting pensions tax relief in next month’s Budget, saying any cut could destroy the UK’S fragile savings culture.

Pensions tax relief costs the Treasury a hefty £40billion a year, and could prove an attractive way of slashing Government spending.

The tax break favours higher earners, who can claim relief at either 40 or 45 per cent, while basic rate taxpayers only get 20 per cent.

There has been repeated speculation that the Treasury could replace it with a flat-rate scheme which would level rates at 20 or 25 per cent for all taxpayers.

Many expected the Chancellor to target pensions tax relief in his March Budget, in a move that could save more than £10billion.

Fears are now growing that it could be a target in the Spending Review and Autumn Budget, which is scheduled for October 27.

Tomorrow marks the start of Pension Awareness Week and Canada Life technical director Andrew Tully warned that any reduction in tax relief would send the wrong signals about the importance of saving for retirement: “We have precious little personal savings in the UK and many people struggle to save enough to live a moderately comfortable retirement.”

Tully also cautioned that if pensions tax relief is reduced it could also discourage business owners from offering high-quality workplace schemes.

Stephen Lowe, director at retirement specialist Just Group, said if Sunak did switch to a flat rate tax relief system he should set it at an attractive level of between 25 per cent and 33 per cent, to encourage saving.

He said the UK pensions system is too complex and needs simplifying but the Treasury must not undermine the vital role that pensions tax relief plays in building a retirement savings culture.

“Sunak must consult with the pensions industry about any changes,” Lowe added.