HM Treasury  

Treasury rejects claims it will slash pensions tax relief

Treasury rejects claims it will slash pensions tax relief

HM Treasury has categorically rejected claims it is planning to cut pension tax relief, following speculation that a line contained in a consultation paper indicated it was planning to do so.

The line in question appeared in a consultation on the government's plan to cut the Money Purchase Annual Allowance from £10,000 to £4,000, announced in the Autumn Statement on Wednesday (23 November).

The line read: "As more people become pension savers for the first time and as automatic enrolment contribution rates increase, the cost of income tax and National Insurance contributions relief will increase.

Article continues after advert

"The government is committed to enabling individuals to save more so that they have security in retirement, but it is important that resources focus where there is most need."

A number of commentators read this as a clear signal the government was planning further cuts to pension tax relief for people on higher incomes.

Matthew Brown, private client partner at Thomas Miller Investment, described it as a "pensions bombshell" that would "send a shiver down the spine of higher rate taxpayers".

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "The Treasury couldn’t have been any clearer if they’d written in big red letters: we’re going to take your tax relief away.”

But HM Treasury flatly rejected these interpretations.

“We completely reject this suggestion – it is not true," a Treasury spokesperson said.

"This is standard language used in our publications to explain how we target support for pensions, in this case explaining why we have made a change to the Money Purchase Annual Allowance."

But Gregg McClymont, former Labour shadow pensions minister and current head of retirement income at Aberdeen Asset Management, said HM Treasury's denial did not necessarily mean pension tax relief cuts were off the table.

He said the government's statement was a "standard and understandable government response", but insisted that the introduction of pension freedoms would eventually force the government's hand.

"The current tax relief system where relief is given to individuals at the marginal rate was designed to fit with a pensions system where savings had to be locked away until retirement when a guaranteed income stream until death was purchased," he said.

"Pensions freedoms at a stroke demolished this context."

He said giving retirees total freedom to access their pension pots at 55 without any mandate to annuitise would increase the state's potential long-term liabilities  

Mr McClymont described these liabilities as "the risk of individuals running out of money and falling back on the state for financial transfers whether income, social care, housing, etc."

"In a fiscally challenged environment it is hard to see how in the long run the state won't seek to match that liability by increasing its stock of assets - via reducing what it pays out in tax relief," he said. 

He said this was an "obvious" point, and the "cardinal fact" in determining pension tax relief.