Middle-class savers need to act now on retirement savings before the new flat-rate pension tax relief is introduced and take the existing 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 that 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.”
Middle class savers who have been prudently putting money aside for their retirement are going to be hit.Mr Green’s comments came after the Financial Times reported that 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 per cent and 33 per cent for everyone, people close to the Treasury have said.
Mr Green warned that those currently receiving between 40 per cent and 45 per cent tax relief, could see a significant drop in their retirement funds, while those who are 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 launched last summer 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 we 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 rate of income tax they pay would be another landmark pension change from this government.
Assuming that 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 that 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.”
