After an election promise to not raise taxes on working people it seems clear that that is precisely what is likely to happen over the coming months. With public finances seemingly on the precipice (as ever) it seems highly likely that Rachel Reeves will introduce a wave of new revenue raising policy’s that whilst may not directly affect your take home pay will very much affect some of the allowances which allowed individuals to bring down their tax bill.
A new report from the Fabian Society, the Left-wing think tank, is calling for the Government to cut the amount of money pensioners can take out of their retirement pots without paying tax, from £268,000 to £100,000, and levy inheritance tax on pensions. The 25% tax free lump sum has been one of the cornerstones of the UK pension system. Anecdotally many of my clients look forward to taking this 25% and use it to pay off a mortgage, help their kids get on the housing ladder or simply do the things they didn’t do during their working life.
Worse still, it is recommending that we introduce a flat rate of pension tax relief of 25-30pc.
This will undoubtedly have a huge affect on higher earners and discourage pension saving. Whilst it will certainly raise some short term revenue, creating a situation where people are discouraged from saving into a pension will not have repercussions for another 20-30 years. Similarly to our reluctance to embrace nuclear energy or build reservoirs this is a monstrous example of kicking the can down the road especially at a time when people saving into a pension is hitting record levels.
Whilst we all want society to be ‘fairer’ how can it be fair for someone to do the right thing by preparing for their retirement only to have the rules changed several years before the finally hang up their boots.
Link to the main article in The Telegraph