Prior to the recent Budget there was much speculation the Chancellor was preparing big changes on the tax relief on pensions. However, on the 11th hour, the Treasury scotched speculation of these changes and therefore there were no adjustments to pension savings tax relief within the forecast Budget.
However, then came the ‘Black Hole’ once the opposition to suggested welfare savings, especially within disability benefits, headed by Iain Duncan-Smith’s decission to resign, derailed the Chancellor’s financial policies. The relationships were very easily made linking his planned HR income tax reductions for the wealthy and the benefit reductions for those in need, obviously unpalatable to many people in the House of Commons. There was then a U-turn regarding these cuts, even going as far as a commitment to stop the raids on benefits in the current parliament.
So now where will the Chancellor seek out money to plug the Black Hole, to put his financial policy back in line? A few months ago, a great deal was being reported regarding pension tax relief being unjust, favoring HR taxpayers and thus making this a valid target. It was disregarded by the Chancellor within the Budget, however, prompted many experts to point out how the coming EU Referendum along with the requirement for the Government to maintain Conservative EU membership advocates happy rather than antagonising the Tory back benches would be a priority, until 23rd June at least!
At the moment, when savers pay money in a pension plan their contributions are increased by tax relief at the same rate they pay on the money they earn, this could be as much as 45%, and data shows that over two-thirds of the present £34 billion pensions tax relief ends up with HR taxpayers. This type of distribution is widely perceived as being unjust and by many experts, unproductive in motivating individuals to save.
Following the Referendum, alterations to pension savings tax relief may quickly come. Of course, as the Budget put extra money in the pockets of the wealthy (as reported by the Institute of Fiscal Studies), it might then be politically well-timed and expedient to take some of it back within the formulation of the ‘fairer’ pension savings tax relief list of measures??.
If we remain in the EU, the weighted retirement savings tax inducement for HR taxpayers will likely have served its function, therefore we can regain the balance, assisting the less wealthy in society. Should the Brexiters win, the cash may still be reclaimed, perhaps having a handy political validation that the impending exit created the change.