In a nutshell, it would mean parking the existing pensions system, and the savings in it, and scrapping higher-rate tax for the new system. “He is not going to tear up the system of pension tax relief”.
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He said he was sympathetic to the idea of single rate of tax relief, suggesting it was “the direction in which we should head ” .
‘It is clear that the system offers very good incentives for higher earners but it is also clear that those who are not higher earners may need some extra incentives’.
But Tom McPhail, head of pensions research at the Bristol-based financial group, warned that “any hint of political interference could result in billions of pounds being withdrawn overnight ” , akin to when thousands of savers rushed to take their cash from Northern Rock as it teetered on the brink of collapse.
But sources indicated that the chancellor is still reviewing a series of policies that could transform the pensions system, including the ISA proposal and plans for offering a single rate of tax relief on contributions for all savers. “There won’t be any changes to tax relief at all in the Budget”.
The proposal, which could save £10bn a year once established, has sparked a Government row with the pensions minister, Baroness Altmann, warning that it threatens to undermine the system by removing the tax incentives for pensioners to keep money in their pot.
“We would still urge consumers to make the most of the current system while it is still in place – this is a postponement and not a cancellation of change”.
“By contrast, the flat rate scheme would be more workable but perhaps wouldn’t have met the Chancellor’s ambition for truly radical reform”.
It is calling on the government to appoint a new Pensions Commission to look into the issue, rather than make short-term changes.
“The big test for this Budget is whether it can start to lay the secure foundations for the economy of the future”.
The Treasury launched a consultation last year on options for reform citing the £21bn-a-year net cost of tax relief, and concerns the current system was not encouraging low earners to save.
U.K. Chancellor of the Exchequer George Osborne dropped a plan to overhaul pension tax relief after pressure from industry groups and fellow Conservative lawmakers.
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Mr Osborne is also reportedly examining a quicker increase in the personal allowance, which is due to rise to £10,800 from April and £11,000 in 2017, to reach £12,500 by 2020, The Sunday Times reported.
