Pensions  

Osborne's aide rules out pension tax reform

Osborne's aide rules out pension tax reform

Ex-chancellor George Osborne's former chief of staff has expressed scepticism about whether there will be major change to pensions tax relief in today's Budget.

Rupert Harrison, now managing director at BlackRock, said the government would struggle to win a vote on scrapping higher rate tax relief at the moment.

Speaking at the Tax Incentivised Savings Association's conference yesterday (22 November), he said: "I think the government should work on the assumption a vote will be lost.

Article continues after advert

"This is the world we live in. I would not expect any government, unless they are absolutely forced to by circumstances, to be raising controversial taxes.

"[Scrapping higher rate tax relief] is quite attractive and I think politicians will one day run with this idea as a way of redirecting revenue to that group of low and middle earners who are not saving enough.

"But it is a tax rise on about five million higher rate earners and that vote would definitely be lost.

"It will come back onto the radar at some point but I would not expect it any time soon."

He added that a period of stability following the reforms of pensions in recent years was probably a good idea.

Mr Harrison was one of the key architects of the pension freedom reforms which came into effect in 2015.

The idea of scrapping the higher rate of tax relief on pensions has been floated several times in the run-up to today's (22 November) Budget.

Last week the Treasury select committee was told tax relief is a "really expensive, inefficient way of subsidising savings".

Mr Harrison said another issue the government should look at is encouraging people to save more through auto-enrolment.

He said there are probably people who think they are fine because they are saving into a pension but will probably be disappointed when they retire.

Mr Harrison said: "Compulsion is going to be a last resort and probably shouldn't be used."

He recommended the use of behavioural economics such as auto-escalation, with a proportion of pay rises going into someone's savings.

Mr Harrison said: "The idea is they wouldn't miss the income because each pay rise is a little smaller than it would be."

Click here to join us at 12pm today (22 November) for our live Autumn Budget blog.

Here to answers your questions about what Mr Hammond's announcements will mean for your clients will be Marcus Brookes, head of multi-manager for Schroders, Lee Clark, divisional director, financial planning, for Brewin Dolphin, and Phil Brown, head of policy for LV.

damian.fantato@ft.com