The government has launched a consultation on tax relief on pension contributions to decide if there is a case for shaking up the current system.
The consultation, launched on 8 July and running until 30 September, is seeking views on whether pension tax relief should be reformed to create a simpler system or existing arrangements should be retained.
Taxpayers currently receive income tax relief on pension contributions, up to a £40,000 annual limit, at their marginal, or highest, income tax rate of 20 per cent, 40 per cent or 45 per cent. For higher rate taxpayers – including solicitors – with an income of between £42,386 and £150,000 a year, this means they can save £1 into a pension for every 60p they contribute.
But with pensions Minister Ros Altmann telling the Financial Times that a flat rate of tax relief was “one of the things we will consider” in the consultation, pension industry insiders are already predicting the writing is on the wall for higher rates of relief.
In July, The Times quoted an unnamed government minister as saying: “Savers should grab a bargain at the closing down sale while they can. Many top earners don’t seem to realise what a generous tax break this is. It might even be worth some people borrowing money to put in their pension.”
Once the consultation closes, the government will publish a summary of responses, setting out how it intends to proceed.
But with the future of pension tax relief in doubt, and no clear timetable for any changes, higher earners need to act quickly to maximise pension contributions before April 2016, when the current tax year ends.
As a new pension tax environment emerges from the government’s consultation, expert advice will also be essential to decide on a way forward for pension saving that also delivers tax efficiency.
Our pensions specialists at MT Financial Management can provide expert advice on all aspects of pensions and retirement planning, to help you maximise the value of your pension contributions now, as well as in the future. For more information, please contact us.