Treasury 'to benefit' from not tinkering with pensions

Treasury 'to benefit' from not tinkering with pensions

The chancellor's decision to leave pension tax untouched in Wednesday's Budget could save the Treasury money as fewer people will rush to make contributions, a pension expert has said.

Chancellor Philip Hammond delivered his second Budget on 22 November, which contained remarkably little about pensions.

He made no new policy announcements and resisted the temptation to tinker with no consultation on any form of pension reform announced.

Some industry figures had anticipated news about possible changes to pension tax relief, an issue which has been on the horizon since former chancellor George Osborne's consultation in early 2016, despite the Treasury effectively ruling it out in March.

Robert Graves, head of pensions technical services at self-invested personal pension provider Embark, said the decision to do nothing could be precisely what a cash-strapped Treasury needs, as it could incentivise people to take a calmer approach to making contributions.

Mr Graves said one of the problems with previous cuts to pension lifetime and annual allowances "was that though they were designed to curtail the Treasury’s tax relief spending on pension contributions, it just encouraged people who could afford to contribute to contribute more for fear of it being the last opportunity to get the tax reliefs before they were cut".

"It thus simply fueled further tax relief spending by the Treasury."

He said a period of stability for pensions could herald a change in the attitude of a ‘buy while stocks last’ rush to make contributions - which would cut the cost of pension tax relief for the Treasury in the short-term.

"We may actually see high levels of contributions by higher rate tax payers ease back and contributions [being made] in a more uniform fashion going forward and thus almost counter intuitively save the Treasury money in the short term."

Additional cash would be welcome news for the Treasury which, it emerged on Wednesday, suffered a tax shortage from pension freedoms in the last year.

Latest figures from the Office for Budget Responsibility (OBR) for tax taken by HMRC from flexible pension withdrawals showed the taxman took £500m less than anticipated at the time of the March Budget, when it was estimated to be £1.6bn in 2017-18,  £1.1bn in 2016-17 and  £1.5bn in 2015-16.

The shortage was revealed in a new OBR report published alongside the Budget.