Is the Chancellor planning to change UK pensions again? With the Autumn Statement fast approaching, it seems that the Chancellor is once again targeting pensions as a way of raising money.
A report in The Times has suggested that the Treasury is considering a revamp of pensions tax relief along the lines of what was recently proposed by Hargreaves Lansdown, a UK SIPP provider.
This would mean a move from contribution tax relief to the Lifetime ISA basis of a government bonus, which produces bigger numbers for the same cost – 20% tax relief at source is the same as a 25% government bonus on the gross contribution.
The Hargreaves idea is that the bonus should be worked out according to the following formula (100 – age)%, so a 25 year old would gain a £75 bonus for each £100 of contribution, while a 55 year old would have a 45% bonus (the equivalent of about 31% income tax relief). Do the maths and higher rate taxpayers over age 33 would lose out as 40% tax relief is the same as a 66.7% bonus.
In his March Budget speech, which introduced the LISA, the former Chancellor said the new plan was “for those under 40, many of whom haven’t had such a good deal from the pension system.” Encouraging saving for the “next generation”, by skewing tax incentives in their favour, would seem also to fit with Ms May’s rhetoric about helping the many rather than being driven “by the interests of the privileged few.”
These potential changes could once again revive the threat of more taxation of your existing UK pensions as proposed in the 2015 consultation.
How the cost would work out for the Treasury is unclear, although in practice most of those receiving higher rate relief are likely to be over that crossover age of 33.
This might offer Mr Hammond a way of seemingly improving the savings lot “for everyone” whilst cutting the tax cost of pensions. However, like the LISA, there is the risk that such proposals attract a “rich kids’ savings plan” tag. It could even revive the old idea of pensions for minors.
The impact of this further tinkering with the pension system is hard to foresee; what is clear however, is that your UK pensions continue to be viewed as a pot of cash to be raided for tax whenever the Government is short of cash and that expats should consider the option of moving their pensions away from the UK whilst the option still exists.
To protect your pensions you should have a Pension Audit to take stock of your retirement plans and make sure that you are on track for the retirement you want.
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