Chancellor George Osborne plans to mount an assault on pension tax relief for higher earners by introducing a lower, flat rate in the March Budget – according to reports.
Under the plans, the 40% and 45% rates of relief would be scrapped and replaced with a flat rate of between 25% and 33%.
In total, pension tax relief costs the Treasury £35 billion a year and a flat rate of 25% could raise about £6 billion.
Current pensions minister Ros Altmann has expressed support for a regime that leaves pensions income taxed because it stopped people withdrawing too much of their pension pots under the pension freedoms and a flat-rate of 25% would benefit lower earners paying a lower rate of income tax as it would effectively top up their pension contributions.
A rate that benefited people at the start of their careers would be consistent with Osborne’s comments in his Summer Budget speech, that ‘it’s time we looked at the other end of the age scale – at those starting to save for a pension’.