Many pension experts are expecting pension tax relief rules to stay put after Brexit despite the cost to the taxman.
Chancellor of the Exchequer Philip Hammond, who considers tax relief to be "eye-wateringly expensive", has so far resisted the urge to tinker with the current allowances, and while many expect this to continue after Brexit, others are not so sure.
Sir Steve Webb, former pensions minister and director of policy at Royal London, said the chances of change on pension tax were slim.
He said: "The only way Brexit could change this would be if the UK public finances were to sharply deteriorate, perhaps because of an economic slump following a no-deal exit.
"If the Chancellor urgently needed to mend a hole in the public finances he could raid pension tax relief again, as cash-strapped chancellors have done in the past, but this would likely be in the form of significant cuts to the annual allowance or a tightening of the tapered annual allowance.
"Structural reform would take years and would not be the answer to a short-term hit on the public finances."
Before the Brexit referendum of 2016 the government had mulled turning the tax relief system on its head, from the current EET system, where contributions are exempt from tax, investment returns are exempt from tax, but the proceeds of pension savings are taxable, to an Isa-style TEE system.
Under this system contributions are exempt from tax, investment returns are exempt from tax, but the proceeds of pension savings are taxable.
A flat-rate of tax relief for all was also on the table.
But any plans that may have been in the works were scrapped in the lead-up to the referendum as George Osborne, the chancellor at the time, said there had been 'no consensus' on which system might be best.
Debate was ignited somewhat last year as the Organisation for Economic Co-operation and Development suggested the UK's pensions tax relief would be fairer if it was changed to a flat rate or completely overhauled.
Shortly before, think tank the Royal Society of Arts – led by former Labour adviser Matthew Taylor – had called for a 30 per cent flat rate of tax relief after it found that 40 per cent of government spending on pension relief went to the top 10 per cent of those claiming it.
Unlike Mr Webb, Baroness Ros Altmann, also a former pensions minister, said if the government was strapped for cash it might be tempted to make some bigger changes.
She said: "My expectation would be that the government might decide to make auto-enrolment minimum contributions compulsory and, at that stage, remove the tax relief on that element of contributions.
"The employer contribution would provide the incentive and Treasury incentives would be offered to people who top up their pensions above the minimum.
"If the Chancellor is looking for more spending cuts, he might also decide to revisit salary sacrifice."
Since 2010 there have been six separate cuts to the annual and lifetime allowances.
The annual allowance - a limit on the amount that can be contributed to pensions each year, while still receiving tax relief – is currently £40,000.
The lifetime allowance, the limit on the amount of money that can be saved in a pension without triggering a tax charge, is increasing to £1,054,720 this year.
But Malcolm McLean, senior consultant at Barnett Waddingham, believes the Chancellor doesn’t have any plans to cut back on the rate of tax relief for higher or additional rate tax-payers, at least in the short term.
He said: "This is probably more due to political considerations - not wishing to upset Conservative core voters whilst in government with such a slim majority - than anything else."
Mr McLean also noted that Mr Hammond had promised a £26.6bn public spending boost if Parliament can reach a deal with the EU before leaving, which, he said, meant "even in the event of a no-deal Brexit he does not need to act too extensively in this year’s Autumn Budget".
Rachel Vahey, product technical manager at Nucleus, said any major reform to the system, as consulted in 2015, should be avoided.
She said: "The challenge of introducing real change in a fair and practical manner - rather than play around with allowances – shouldn’t be underestimated.
"With the pressure that Brexit has placed on the country’s legislative and political resources, it’s unlikely we will see any new proposals in this area in the short term."
Kay Ingram, director of public policy at national firm LEBC, also agreed tax relief would be off the government’s radar, whatever the outcome of Brexit
She said in the case of no-deal, the government "will have bigger issues to deal with than pensions tax relief, such as securing supplies of medicine and food, the practicalities of reorganising customs and meeting the requirements of EU countries to which UK businesses are exporting".
If there is a deal, the UK will enter into a transition period until end of 2020, which means day to day life would continue "with little change in the way we do business in Europe".
She added: "However as anyone who advises on divorce knows, agreeing to divorce is the easy bit, the financial settlement can be harder to achieve.
"I believe therefore that as in the no-deal scenario, parliamentary and civil service resources will be stretched and leave little room for discussion on anything other than the shape of the deal post transition."
But Alistair McQueen, head of savings and retirement at Aviva, said the provider backed a reform of the current pension tax system, and that a flat rate would create a level playing field that would allow the UK to better target its resource where they are needed most.
However, he said the government didn’t have the appetite to voluntarily rock the boat with "brave political decisions".
He added: "Brexit has changed many things, but not our increasing life expectancy, nor our need to save. The pressure of funding our ageing society also remains huge.
"In the interests of the millions who are striving to save for their retirement, let’s keep our head while those around us may be losing theirs."
maria.espadinha@ft.com
