Personal Pension  

Act before flat rate pension tax relief is introduced

“While it will provide some challenges in terms of system modifications and interactions with AE, it should benefit basic rate taxpayers and make saving for the long term more appealing to people who just aren’t saving enough, if at all.

David Trenner, technical director of Intelligent Pensions, said: “There is no question that people who are subject to higher rate tax should pay a contribution if they have available cash. They could lose out significantly if they wait to see what happens. For those over 55 there is the added reassurance that if they run into financial difficulty, they can access the fund at any time, with 25 per cent of it tax free.

For those with income - income not just earnings - over £150,000 the Tapered Annual Allowance being introduced in April is already a good reason to pay a large lump sum into their pension, although the reduction in the LifeTime Allowance to £1m needs to be taken into account.”

Martin Tilley, director of technical Services at Dentons Pension Management, said: “As always the devil will be in the fine print, as there are obviously administrative complications to overcome in such a move. Particularly for employer contributions and those remaining DB schemes. Treatment from a tax perspective of unfunded schemes will also need to be innovative.

“My worry, as has been borne out in the past, is that whatever announcement we have will not fully address all of the complications caused by the change and the timescales for implementation will be both too short and under estimated in terms of complexity and costs.

“What we do need is clarity and unity in the way any change is presented and communicated and that this be in a positive rather than negative light.”

Claire Trott, head of pensions technical at Talbot and Muir, said: “If brought in, it would mean that net pay arrangements would need to be amended to ensure that full marginal rate relief isn’t given and it would, therefore, be simplest to move entirely to relief at source.

“Salary sacrifice will become an issue if flat rate relief option is taken up because the way in which salary sacrifice works means individuals are getting full marginal rate relief because they have swapped taxed income for a pension contribution made by their employer. They also benefit from reduced personal and employer National Insurance contributions, some of which may be passed on by the employer as additional savings.”