Shake-up of pensions tax relief off the table, for now

18 July 2017


The Financial Times has reported that although a 'fundamental' shake-up of pensions tax relief has been ruled out by the government, experts are warning pension savers to expect 'more slicing and dicing' of lifetime and annual allowances instead.

Major changes, which would likely have seen tax relief on contributions scrapped for higher earners, have been ruled out by the government for the time being. Tax relief on pension contributions is currently pegged to the saver’s marginal rate of income tax. So top-rate taxpayers receive 45 per cent tax relief on their contributions, higher earners receive 40 per cent, and basic rate payers 20 per cent. Even non-taxpayers are entitled to claim basic rate relief on contributions.

David Gauke, the newly installed secretary of state for work and pensions, said that he did not see “a particular consensus emerging” ,for an overhaul of retirement savings incentives.  He said, “I wouldn’t see any fundamental changes in the near future. The idea of reforming pensions tax relief in the previous parliament was somewhat daunting and recent events haven’t changed that.”

However, Mr Gauke indicated that major reforms were not completely off the table. He was a minister in the Treasury in 2015 when former chancellor George Osborne floated radical proposals which could have resulted in the loss of upfront pensions tax relief for higher earners in an attempt to reduce the £21bn annual cost of tax relief for individual savers.

Read more from the Financial Times.