Pensions raid looms as savers push tax relief past £50bn
2 min read
Savers may face a fresh round of pensions raid as tax relief offered by HMRC moves past the £50bn mark for the first time.
The Treasury released figures showing the total number of pensioners entitled to tax relief jumped by more than 10%, as more people saved privately for their retirement.
The tax break is now so expensive that abolishing it would allow the Government to wipe out the budget deficit at a stroke, or halve the basic rate of income tax to 10p in the pound.
Instead, the £5.3 billion increase in tax relief added pressure on HMRC as civil servants struggled to find the cash to pay for expensive commitments made at the Conservative party conference.
A source close to the Treasury said: “The cost of tax relief is only headed in one direction at the moment. There is widespread recognition that the cost trend needs to be reversed.”
Tom Selby, an analyst at AJ Bell, said: “There has already been speculation that Philip Hammond will take the axe to pension tax relief in his first post-election budget, and numbers such as these will inevitably add fuel to the fire.”
Tax relief lets higher-rate taxpayers put £1 into their pension for every 60p they contribute, but basic-rate payers have to contribute 80p.
Those earning more than £45,000 per year are entitled to the tax break, which fuels accusations it only exists to aid the wealthy.
Tom McPhail, of Hargreaves Lansdown, the investment broker, believes the government is not in a position to make big changes in this Parliament.
“Major structural change is ultimately inevitable because there are so many inefficiencies in the system, but it would require substantial political capital to do it now and that is in very short supply,” he said.
A more likely outcome in next month’s budget was more “salami slicing” of existing allowances, he said.
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