Chancellor's U-turn prompts fears for pension tax relief

Chancellor's U-turn prompts fears for pension tax relief

Experts have warned that Chancellor ‘Spreadsheet Phil’ may cut pension tax relief in a bid to recoup the losses from his U-turn on national insurance contributions for the self employed.

“The real risk is that the Chancellor targets pensions tax relief to make up the shortfall the increase in Class 4 National Insurance would have provided,” said Jon Greer, pensions technical services manager at Old Mutual Wealth.

Tom McPhail, head of retirement policy at Hargreaves Lansdown added that the “U-turn will increase pressure in other areas of fiscal policy and may increase the risk of further pension tax tinkering in the Autumn budget".

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Chancellor Philip Hammond announced earlier today (15 March) that the planned increase in Class 4 national insurance contributions for the self-employed would not now take place, after a backlash from Tory backbenchers who felt the increase breached the Tory election manifesto not to raise income tax or national insurance.

In a letter to Tory MPs on Wednesday, Hammond said there would be no increases to rates of national insurance during the current parliament, which is due to run until 2020.

The tax rise - which was set to increase national insurance contributions for the self-employed by 1 per cent to 10 per cent from April next year, and then increase again to 11 per cent in 2019 -was meant to address a shortfall in national insurance contributions.

However, Mr Hammond will now have to find the cash elsewhere.

The move to increase NI was one of only two large money raising measures in the Budget, and assessments of the measure said it was worth £495million a year by 2022.

Steve Webb, director of policy at Royal London and former Pensions Minister, said “.What is needed is a long-term strategy for tax, not a serious of short-term announcements. 

“Now that the Chancellor has committed to leave NICs for the self-employed alone, we also need a long-term commitment to stop meddling with pension tax relief. 

"That would provide savers with the certainty that they urgently need.   We also need a strategy to tackle the pensions saving crisis amongst the self-employed which remains unaddressed".