Pensions: Make My Money Matter promote campaign
When you subscribe we will use the information you provide to send you these newsletters.Sometimes they’ll include recommendations for other related newsletters or services we offer.Our Privacy Notice explains more about how we use your data, and your rights.You can unsubscribe at any time.
Rishi Sunak has been tasked with providing Britain’s economic response to the ongoing COVID-19 crisis, and will lay out next steps in his March Budget. The Chancellor is tasked with delivering the Budget amid a significant fiscal deficit, with Government borrowing particularly high. As a result, experts are now predicting a number of changes could be on the table for the Chancellor to announce within the month.
One such change is pension tax relief, which is useful for many planning for retirement, but could be set to undergo alterations.
Tom Selby, senior analyst at AJ Bell, commented on the potential choices the Chancellor could deploy within his upcoming Budget.
He said: “A simple way to raise tax revenue from the £40billion pensions pot might be to tweak the existing annual allowance, which currently stands at £40,000.
“If this were reduced to, say £30,000 or even £20,000 – in line with the cruet ISA allowance – the Chancellor could save some cash while leaving the retirement savings options of the majority unaffected.
“However, such a move would also risk sending an anti-savings message and add to the litany of annual and lifetime allowance cuts we have seen in the past decade or so.”
A key benefit to such a move would mean the majority of pension savers are unaffected, which could make a decision more palatable.
In addition, this kind of reform is more likely to be easier to implement than some more radical suggestions which have been put forward in the past.
It has been previously speculated whether the Chancellor could scrap higher-rate pension tax relief in favour of a “flat rate” for all savers.
DWP issues update to Britons as Post Office accounts set to close [INSIGHT]
Virgin Money: 2% interest rate and free wine deal ends tonight [UPDATE]
Rishi Sunak has been ‘naive’ on mortgage holidays – impact on deals [EXCLUSIVE]
While such a decision could create a cost saving for the Treasury, it would be one which has ripple effects across all pension savers.
But any changes to pension tax relief as it currently stands would have some sort of impact on savers.
Mr Selby continued: “This constantly moving feast does not instil people with confidence in the stability of the UK’s retirement rules and undoubtedly puts people off saving for their future.
“Over the longer-term we need to work towards greater stability and simplicity in the pension tax framework.
“It is crazy that savers potentially have to navigate three different versions of the annual allowance as well as the lifetime allowance when saving for retirement.
“Getting rid of the annual allowance taper and the poorly understood money purchase annual allowance (MPAA) – possibly as a quid pro quo for a lower annual limit – would make understanding pension a whole lot easier for millions of people saving for retirement.”
It is unclear how much small changes to pension tax relief could raise for the Exchequer, or whether such a plan will actually be implemented.
However, Mr Selby highlighted reducing the pension annual allowance could be devastating for public sector workers.
This is because these individuals are usually more likely to break the annual allowance, through accrual built up in Defined Benefit schemes.
This year’s Budget is scheduled to fall on March 3, 2021 where the Chancellor will outline his economic plans for the year ahead.
It is yet to be seen what the Chancellor will announce, however, this year’s Budget is predicted to be one full of new announcements related to the ongoing COVID-19 crisis.
It is expected he will touch upon key financial issues, including Government support measures such as SEISS and furlough, as well as Universal Credit.
Source: Read Full Article