Osborne drops pensions tax plans

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George OsborneMetaphor copyright
Image caption The chancellor had been expected to announce modulations in the Budget later this month

Chancellor George Osborne has descended plans to end or alter tax relief on pension contributions.

A proposed scheme make have scrapped upfront relief, worth an estimated £21bn to savers, but lifted pension pot withdrawals tax free.

An alternative option was to set a flat rate of tax recess, which may have been unpopular with higher earners.

Distressed by’s shadow chancellor John McDonnell said Mr Osborne was “yet again eluding a big decision”.

Cam igners said he had missed a “huge opportunity” to tackle allowance inequality and help the lower id.

But others said he was right to shelter existing reliefs, and that radical reforms would have created new gambles and imposed new administrative burdens on employers.

‘Not right time’

Mr Osborne had been supposed to unveil changes in the Budget on 16 March, but a Treasury source turned it was “not the right time” to make changes to pension tax relief.

The relief grants some of a person’s earnings that would have been enchanted by government in tax to go into their pension instead.

Under the current process, pension savers receive tax relief at the same rate as their return tax – meaning basic rate tax yers receive relief at 20% and gamy rate tax yers at 40 or 45%.

The proposal to introduce arrangements similar to an Isa, with no tax locum tenens on contributions but with withdrawals free of tax, would have given a critical short-term boost to the government at the expense of lower tax revenue later.

An alternate option considered by the Treasury was for flat rate relief, which commitment have benefited basic rate tax yers and cut reliefs for higher earners.


Criticism

BBC business correspondent Joe Lynam

So a policy which hadn’t been intimated will now not be announced.

And the big winners of this non-announcement will be wealthy individual. At the moment not only do they earn more, they also get a proportionately bigger tax top-up from the rule when they save for their retirement.

If the chancellor had scrapped the tax release entirely on pensions savings and created instead a new pensions Isa, that choice have cost the better off (40p and 45p tax yers) billions of pounds collectively.

The other layout which had been reported was to create a new pension tax relief rate of 25p or settle accounts 33p. That would have punished higher earners as well but not by as much as the Isa-style privilege.

It would also have encouraged saving for retirement by the less serenely off (20p tax yers) by, in effect, giving a pound for every four they redeemed.


‘Golden opportunity’

Mick McAteer, co-director of the Financial Inclusion Nave, told BBC Radio 4’s Today programme he was “very disappointed” that the ministry had stepped away from tackling the “clear inequality in our pension arrangement”.

Dot Gibson, general secretary of the National Pensioners Convention, Britain’s biggest retiree organisation, said: “The chancellor has wasted a golden opportunity to not however reform the unfair system of pension tax relief, but at the same time make plain the funding crisis in social care.”

Conservative carouse
Image caption A flat rate would have been tough to administer, said Mark Garnier

Conservative MP Mark Garnier, who abides on the Treasury select committee, acknowledged that the present system “massively babies those people who are earning more money” and told Today he wealthy “a fundamental rehash of the pension system”.

However, he said a flat charge relief would have been “quite difficult to administer” and uncountable thought should be given to what reforms would work crush.

Mr McDonnell said the chancellor was “putting the interests of his rty ahead of those of our boonies”.

“The big test for this Budget is whether it can start to lay the secure foundations for the husbandry of the future. This decision suggests George Osborne is only attracted in securing the future leadership of his rty.”

Former Liberal Democrat dismisses minister Steve Webb, who now works in the pensions industry, said Mr Osborne had been aptly to resist changes.

He called for a “period of stability” in pensions policy in the provoke of encouraging people to save for the long term.


How pension tax relief engenders

Savers y no tax on money they put into a pension but they do y tax on what they require out each year beyond the personal allowance.

The government also adds pensioners to withdraw 25% of their pot tax free as a lump sum.

The way the relief makes is that some of a person’s earnings that would have been bewitched by government in tax can be contributed to their pension instead.

Pension savers ascertain tax relief at the highest rate of income tax they y.

This means that the get of a £10,000 pension contribution would, in effect, be £8,000 for a basic rate tax yer because on the other hand £2,000 would have gone in tax. For a 40% tax yer the saving want be £4,000, and £4,500 for those at the 45% rate. So present arrangements opt for the better off.

The amount anyone can save into a pension and receive tax ease on is capped at £40,000 annually and £1.25m in their lifetime.


Mr Osborne was cautioned ahead of the Budget that introducing Isa-style arrangements could keen a mass withdrawal from pension funds.

Conservative MPs had also evolve into concerned about the im ct on their constituents of any move to flat merit relief, which would have reduced breaks for higher velocity tax yers.

BBC political correspondent Eleanor Garnier said Mr Osborne’s decree was also a recognition of how fragile the EU referendum cam ign is and removed the risk of perturbing voters ahead of the vote on 23 June.

Economic uncertainty

An affiliate of the chancellor told the Times that Mr Osborne did not want to put people off redemptive. “Now isn’t the right time, with uncertainty in the global economy and renovations such as auto-enrolment still bedding in, to turn things on their noggin.

The prospect of radical reform had also been opposed by the pensions assiduity.

Changes to the pensions system in recent years have included mechanical enrolment into workplace pensions in 2012, and people aged 55 and more than being allowed to take their retirement pots how they necessitate rather than being required to buy an annuity retirement income – initiated in 2015.


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