Chancellor George Osborne scraps the Budget proposal for a flat rate of pension tax relief following widespread opposition.
Tomorrow, 16th March, the Chancellor will reveal the details of the 2016 Budget. There has been much speculation over what will be included but, if the rumours are to be believed, the plans to change pension tax relief might not be implemented.
The introduction of flat rate tax relief was projected to raise up to £10 billion a year in savings, making a dent in the Government’s deficit. The impact on savers would have been considerable, with higher- and additional-rate taxpayers losing out significantly. Osborne’s decision not to remove the banded rate relief has reassured those who feared that they would lose out – a change in direction to placate the electorate in the run up to the Brexit vote?
The reaction from the pension industry was as clear as the public reaction; sweeping overhaul of the pensions system would cause additional burden on pension providers who are already struggling to cope with the dual pressures of auto-enrolment and pension freedoms. The threat of pension changes is rumoured to have already cost the Treasury £1.5 billion as the public poured money into their pensions to bank tax relief before it was removed or reduced. The Chancellor has taken these concerns into account and radical alterations to the system are off the agenda for now.
There is no way of knowing for certain what George Osborne will be proposing in tomorrow’s budget, but there could be more tinkering of pensions legislation in other areas. We would encourage everyone to use their full annual pension allowance as we move closer to 5th April and the end of this tax year.