U.K. Pensions to Fund Budget Cuts*
By Lana Clements
The Chancellor is to unleash around £12billion worth of spending cuts that were promised as part of the Conservative manifesto – and retirement perks are in the firing line.
Yesterday, a briefing paper on pension taxation was posted on the parliament website, which experts said increased the odds that the government is to make some brutal changes.
The Government is widely expected to cut relief available to the highest earners to £10,000 from £40,000 a year on a sliding scale.
But this could be just the tip of the iceberg, as Britain’s ageing population and the Government guarantees on state pensions is putting the UK on track to spend more on welfare by 2019.
Experts fear that the tax relief on the 25 per cent lump sum of pension savings that can be taken from the age of 55 could be reduced or dropped altogether.
Some critics also think that the government could move to a flat-rate of pension tax-relief of 30 per cent to make the system easier to understand.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “The UK’s pension system is still very much a work in progress and with so many radical changes already underway, further reform is inevitable.
“For the sake of all investors, young and old, modest or wealthy, we would like to see a system of pension taxation which encourages saving and investing and which rewards people for taking responsibility for their own retirement.
“We need to see a stable, long-term settlement which helps the UK to build good levels of retirement savings.
“Our great concern is that the government will simply cap tax breaks for higher earners. This would do nothing for the vast majority of the population except make the pension system marginally more complicated than it already is.”
The change would cost someone earning £210,000 or more £13,500 in lost tax relief, according to Hargreaves Lansdown.
Experts have urged those who could be affected to act now while the perk is still available.