Treasury mulls slashing higher-rate tax relief on pensions contributions
The Treasury is reportedly considering huge cuts to tax relief on pensions contributions amid the spiralling cost of measures brought in during the pandemic.
On 23 March, which has been dubbed “tax day”, the Treasury will announce new consultations on proposed taxation reforms, which could include reforms to pension tax.
When people pay into their pensions they receive tax relief on any contributions made, which costs the government around £40bn a year. A large portion of that is spent on public sector schemes so any reform could save huge sums for the government.
And Whitehall will be pleased with some cost-cutting measures after figures published on Friday revealed government borrowing reached its figure for February since records began.
Figures from the Office for National Statistics (ONS) showed public borrowing ballooned thirteenfold to £19.1bn in February this year – up from £1.5bn in the same month a year earlier.
Rishi Sunak is reported to have been considering slashing relief on contributions to a flat rate of 20 or 25 per cent for all workers since last November, the Telegraph reported.
It has been characterised as a “raid on Middle England” and could prove politically toxic for the Conservatives.
Savers could end up thousands of pounds worse off in retirement after the cuts and those with “defined benefit” pensions, as well as younger workers on “defined contribution” plans will be affected.
The City is also bracing itself for possible reform to capital gains tax next week, which has been on the cards since Sunak commissioned a review last year.