Many IFA’s are urging middle-class savers to act now on retirement savings and receive pension advice before the new flat-rate pension tax relief is introduced and take the existing tax relief while it lasts.
Those paying higher rates of tax have traditionally been awarded more relief on their retirement savings. It would seem that this time-honoured practice is to be axed.
Therefore, middle class savers who have been prudently putting money aside for their retirement are going to be hit by Mr Osborne’s plans.
The Financial Times have reported that pension tax relief for those on higher incomes looks set to be ditched as part of HM Treasury’s overhaul of the pension system.
Chancellor George Osborne is expected to announce a move towards a flat rate government contribution in his March Budget, according to FT.
Currently, workers enjoying pension tax relief at the same rate as their income tax, but the change would see a shift towards a pension savings incentive of between 25 per cent and 33 per cent for everyone, people close to the Treasury have indicated.
Those currently receiving between 40 per cent and 45 per cent tax relief, could see a significant drop in their retirement funds, while those who are seeking to make larger one-off pension contributions to make the most of retirement savings might be wise to “consider doing so sooner rather than later”.
A review into pensions tax relief launched last summer found that retirement tax relief cost nearly £50bn a year.
A HM Treasury spokesman has said that “they have not decided on whether or how to reform the system, and we are considering all options, including retaining the current system. We are considering the responses and will respond at the Budget”.
(Jonny Paul/ FTAdviser.com)
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