Plans for pen­sion tax relief cuts are made in the dark

The Daily Telegraph - Your Money - - MONEY - Laura Miller

Savers face dras­tic cuts to the amount they can put into their pen­sion, but the de­ci­sion is based on in­com­plete data, Tele­graph Money can dis­close.

Plans are afoot for the Chan­cel­lor to cut pen­sion sav­ing in­cen­tives in the Bud­get (see above). A key bat­tle­ground is the £1.03m life­time al­lowance, the max­i­mum sum you can hold in a pen­sion with­out trig­ger­ing a tax charge of up to 55pc. Ex­perts ex­pect a re­duc­tion in the life­time al­lowance or changes to the way it is as­sessed, which would hit fi­nal salary pen­sion hold­ers hard­est.

At the mo­ment, breach­ing the life­time al­lowance is a threat if your fi­nal salary pen­sion, with no sep­a­rate lump sum, is on course to give you £51,500 a year or more. But if the Chan­cel­lor tweaks the way these pen­sions are val­ued, the life­time limit could hit those who re­tire on £34,333 a year, or even £25,750.

De­spite the sig­nif­i­cance of such a change, Free­dom of In­for­ma­tion re­quests to de­part­ments in charge of pro­vid­ing data un­der­pin­ning the de­ci­sion show that nei­ther the Trea­sury nor HMRC could say how much tax relief was paid to savers in each of the two main types of pen­sion: de­fined con­tri­bu­tion and fi­nal salary, also known as de­fined ben­e­fit.

Jon Greer of Quil­ter, the wealth man­ager that lodged the re­quests, said: “It is im­pos­si­ble to make con­sid­ered changes to pen­sion tax­a­tion with­out bet­ter data and knowl­edge on where the money is spent. The im­pact of tinker­ing with al­lowances is con­sis­tently un­der­es­ti­mated by the Gov­ern­ment. Is this a re­flec­tion of the data on which pol­icy is made?”

The Trea­sury said in its re­sponse to the in­for­ma­tion re­quests that it “does not hold [that] in­for­ma­tion” and sug­gested that HMRC might. But the tax of­fice said it “does not hold all of the in­for­ma­tion re­quired to de­ter­mine the pro­por­tion of tax relief re­ceived by de­fined con­tri­bu­tion and de­fined ben­e­fit schemes” be­cause em­ploy­ers were not re­quired to pro­vide it with the de­tails for “net pay” ar­range­ments, the most com­mon type of pen­sion set-up.

HMRC pub­lishes an es­ti­mate that is the source of the of­ten-cited gov­ern­ment fig­ure of £39bn for the over­all cost of pen­sion tax relief. But the tax­man said this fig­ure could not be split by scheme type. Cur­rently de­fined ben­e­fit pen­sions are favourably treated when it comes to tax relief be­cause the cal­cu­la­tion used to de­ter­mine their value is based on out­dated fig­ures.

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