Baroness Ros Altmann has revealed a split between the Department for Work & Pensions and HM Treasury over chancellor George Osborne’s mooted changes to tax relief on retirement savings.
As reported in FTAdviser’s sister newspaper the Financial Times today (4 March), the pensions minister has voiced her support for the current system of taxing pension income, rather than contributions.
In light of pension freedoms - where anyone aged 55 plus can acess their entire retirement pot to spend as they wish - taxing people when they take an income from their nest egg is a “natural brake” on retirees spending their savings too soon, she said.
While she said she recognised the current system benefits high earners more than those on lesser incomes, who “may need more incentives”, she said “we may decide that the current system is best. It has got some merits”.
Baroness Altmann’s comments will add to the mounting pressure on Mr Osborne both within government and industry to rule out radical changes to pensions tax relief.
In the Summer Budget last year, the chancellor announced further radical reforms of the pensions system could be underway, with the implication that pensions contributions would no longer be tax free, but withdrawals would be.
Mr Osborne said he was “open to further radical change” of pensions, while announcing a green paper to consult on further changes.
At that time he said: “Pensions could be taxed like Isas. 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.”
Under the current system, individuals can receive tax relief at the same rate they pay tax on pension contributions, whether 45, 40 or 20 per cent.
Following a speech by Baroness Altmann at FTAdviser’s Retirement Freedoms Forum on Wednesday, more than 130 advisers gathered at the event at the Mayfair Hotel stated they also do not want to see a pension Isa introduced in this month’s Budget.
Kim Barrett, managing director of Barretts Financial Solutions, said: “She sits around the same cabinet table as the chancellor so I would have thought all cabinet members would sing from the same hymn sheet.
“Long-term, all [the proposals for change] do is strike a dagger into the heart of pensions savers, following on from the Tories when they last did it in the 90s, then Gordon Brown, and now the Tories again.
“I’ve had two meetings this week with clients with a lifetime allowance problem. We are trying to protect £1.5m. Not only do we have to worry about the lifetime allowance but now tampering with tax relief.”
Changing the taxation of pension would be a “further retrograde step,” he said.