Will the Emergency Budget slash your pension contributions?

On the 8th July, the chancellor George Osborne will unveil his first Budget in a Conservative-only government. Knowing that cuts have been forecast, the big question is how these will be implemented – and will there be further changes for savers so soon after the new pension rules?

The State Pension is protected by the triple lock so we know in advance that it is safe, but there could be further changes to private pensions, such as:

1 Pension

Annual allowance

This is the amount that can be contributed to a pension each year and receive tax relief, and it’s currently £40,000. Contributions over that amount will not have tax relief applied. The Conservative party has already announced that it plans to reduce this for people who earn £150,000 or more a year, on a sliding scale with an allowance of £10,000 when earnings reach £210,000.

2 PensionTax relief

Currently tax relief is applied at the marginal rate of income tax, so a basic-rate taxpayer receives 20% relief while a higher-rate taxpayer receives 40%. Former pensions minister Steve Webb has repeatedly made clear that his preference is flat rate tax relief, which would be a set percentage for everyone regardless of their marginal tax rate. Proponents, such as Webb, argue that this would be a simpler reform, and it could also further encourage lower earners to save into a pension if the rate was higher than 20%. 

3 PensionSalary sacrifice

The government currently loses billions of pounds of potential National Insurance contributions a year, as salary sacrifice lowers an employee’s salary – often for the difference to be saved into a pension – and this in turn reduces the amount of National Insurance they are required to pay. Salary sacrifice schemes are also used for flexible benefit schemes, where an employee receives a non-cash benefit in exchange for a reduced salary or buying extra holiday.

The new pension rules were implemented just three months ago, but as the government has pledged not to increase income tax, National Insurance or VAT it may be that other changes will be made too.

Tampering with tax relief could discourage saving into a pension, though, as almost two-thirds of people with an annual household income over £20,000 would be deterred if tax relief was reduced or removed. Moreover, 90% of people aged 35-55 think more should be done to encourage retirement saving, so the government could potentially alienate a number of savers with adjustments to tax relief.

Do you think there should be changes to tax relief on pensions? Tell us with a comment below.

Call 0800 304 7288 for a friendly chat about your pension

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new

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