What can we expect from Phillip Hammond on Pensions in the forthcoming Autumn Budget?
The first Autumn Budget takes place on Wednesday 22 November and there have not been a lot of changes in the previous two – but will this one be any different?
Following on from the scrapping of the proposed reform of taxation on pensions, there have been no subsequent announcements as to the alteration or cessation of tax relief on pension contributions. The Government may well be feeling the pain now though, after being forced to maintain the state pension triple lock, and therefore looking to recover costs.
One area that is thought to be challenged is the rate of tax relief on pension contributions. Currently higher rate tax payers get relief at 40% and basic rate tax payers 20%. What is mused is a flat rate for all tax payers of 33%!
This will hit middle earners who are typically the ones that are more likely wanting to contribute and the lower earners (typically generation Y) may already be, or about to be feeling the pinch of the increased auto enrolment contributions. Will they want to contribute more even if the tax relief is more generous, and more importantly – are they able to?
Other ideas are the age related tax rebates – but surely this would create an unwelcome administrative burden?
Currently employees can contribute £40,000 per year in pension contributions. In 2016/17 this was tapered for members who have adjusted income over £150,000 and threshold income over £110,000.
Would a reduction in the annual allowance from £40,000 to £30,000 be perhaps one of the easiest changes? Perhaps dove tailed with a removal of the tapered annual allowance to lessen the blow?
What we are expecting is confirmation of the increase of the Life time allowance to £1,030,000. The 2018/19 rate is expected to be increased in line with September CPI. This was announced in October at 3%.
Also in the headlines recently is the dubbed “pensions super tax”. This arises where one off sums taken using the new pension freedom rules are taxed as if they were regular payments. It is reported that £37m of refunds were issued between July and September this year to correct this. It is hoped that the Chancellor will do something to address this, not least to reduce the administrative burden from HMRC in processing these refunds but also in fairness to the tax payer, some of which are oblivious that they have been over taxed or at a loss to know how to reclaim this.
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