The chancellor confirmed yesterday (27 October) that the government will not respond to its pension tax consultation until next year’s Budget.
Speaking in the Commons, George Osborne said the Treasury had received “a lot of interesting suggestions on potential reform” following the paper published at this year’s summer Budget.
Back in July, three main options for the future of pensions tax relief were proposed, the more “radical” of which was that pensions could be taxed like Isas, explaining “you pay in from taxed income – and its tax free when you take it out – in-between it receives a top-up from the government”.
There had been speculation Mr Osborne would use the Autumn Statement next month to outline the government’s strategy, however he stated on Tuesday: “It is a completely open consultation that will lead to a genuine Green Paper... we will respond to that consultation fully in the Budget.”
Gareth James, head of technical resources at AJ Bell, commented that resolving the complexities of the various options by the Autumn Statement was always going to be a challenge.
“The fact that he sees a need to consult on the government proposals through the mechanism of a Green Paper suggests change will be significant – why consult further if the proposals include only minor changes.
“It also means that they are not intending to introduce more changes without them being properly considered which should be welcomed by pension savers as well as the industry.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, agreed that the delay is a reflection of the complexity of the pension tax system and the challenge in introducing any reforms.
“This is a mixed blessing for higher earners. A quick response would have meant no change. The fact that they want more time to work on it suggests they are still pursuing fundamental reforms; I believe these are likely to lead to cuts in the tax breaks offered to higher earners.”
He added that people should seize this opportunity to maximise pension funding while they can still benefit from these tax breaks, as they probably won’t be around for much longer.