Pressure mounts on chancellor to stay clear of pension tax

Pressure mounts on chancellor to stay clear of pension tax
 Chancellor of the exchequer Rishi Sunak

Former Brexit secretary David Davis has urged chancellor of the exchequer Rishi Sunak to not go ahead with a potential raid on high earners' pensions tax relief, saying it would be a “moral disgrace”.

Speaking on the Andrew Marr Show yesterday (February 23), the Conservative MP said the government “certainly does not want to be putting more tax on pensions” at this time.

Mr Davis said plans to cut tax relief for higher earners, effectively increasing the amount of tax they pay, would be a bad idea.

He said: “There is a wreckage of the pension system because of the taxes already on it and increasing them further will be a moral disgrace and an economic farce.”

Before Sajid Javid suddenly resigned from his role as chancellor this month, he was considering cutting pensions tax relief for high earners in his Budget, in a bid to make the the system fairer for those on lower incomes.

Under current rules tax relief is paid on savers' pension contributions at the rate of income tax they pay.

This system costs the Treasury almost £40bn a year in lost income tax revenue but cutting tax relief on pension contributions to 20 per cent, rather than the 40 per cent enjoyed by higher earners, could help raise £10bn a year.

Conservative MPs are strongly opposed to any changes to tax relief with concerns that they would be difficult to implement at short notice.

Several advisers have also warned if the government were to make any changes to the way pension tax relief works, the plans would need to be well thought out, avoid unnecessary complications and the process would take time.

They told FTAdviser there would need to be a decent consultation period with input invited from a wide variety of contributors rather than being rushed through and potentially causing unnecessary complications.

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