Middle class savers need to act now on retirement savings before the flat-rate pension tax relief is introduced and take the tax relief while it lasts, Nigel Green, chief executive of deVere Group, has warned.
“Those paying higher rates of tax have traditionally been awarded more relief on their retirement savings. It would seem this time-honoured practice is to be axed.
“Therefore, middle class savers who have been prudently putting money aside for their retirement are going to be hit by [Mr] Osborne’s plans.”
Mr Green’s comments came after the Financial Times reported pension tax relief for those on higher incomes looked set to be ditched as part of HM Treasury’s overhaul of the pensions system.
Chancellor George Osborne is expected to announce a move towards a ‘flat-rate’ government contribution in his March Budget, according to the FT.
Currently workers enjoy pension tax relief at the same rate as their income tax, but the change would see a shift towards a pension savings incentive of between 25 and 33 per cent for everyone, people close to the Treasury have said.
Mr Green warned those currently receiving between 40 and 45 per cent tax relief, could see a significant drop in their retirement funds, while those seeking to make larger one-off pension contributions to make the most of retirement savings might be wise to “consider doing so sooner rather than later.”
A review into pensions tax relief was launched last summer, which found that retirement tax relief cost nearly £50bn a year.
A HM Treasury spokesman said: “We have not decided on whether or how to reform the system and are considering all options, including retaining the current system. We are considering the responses and will respond at the Budget.”
Steven Cameron, regulatory strategy director of Aegon, said moving to a system where everyone receives the same tax relief top-up whatever income tax they pay would be another landmark pension change from this government.
Assuming the single rate is set somewhere between 25 per cent and 33 per cent, Mr Cameron said it would mean pensions become more attractive to low and modest earners as the government would be giving a bigger boost every time a basic rate or non-taxpayer pays into their pension.
He said: “Aegon’s research indicates 60 per cent of the population would be in favour of a move to a flat rate if it was set at 33 per cent.”
Andy Zanelli, head of retirement planning at Axa Wealth, said a flat rate would level the playing field. “It could be the boost to pensions simplification we’ve needed for a long time. Pensions need to provide an income that could last for 20, 30 or even 40 years, so it’s vital we remove any barriers that prevent people from saving and investing – a complex tax system where few understand the benefit is one of them.