Tax Raid on Pensions A Way Out of COVID-19?

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Written by: Liez Comendador
Tax Raid on Pensions

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British Finance Minister Rishi Sunak has continued to spend big when it comes to helping the economy through the pandemic. However, this means raising the U.K. taxation rate to its most elevated level for over 50 years in order to start covering the bill.

According to recent reports,

Pension savings may be raided to cover coronavirus spending, with Rishi Sunak and other Treasury officials reportedly seeking to reduce pressures on public coffers following the pandemic.”

The Treasury is considering a pension tax raid to help pay for public spending during the Covid-19 pandemic. A triplet of changes to pension contributions are being drawn up, including lessening the pensions lifetime allowance from just over £1m to around £800,000. Bringing down this limit has a significant impact, as pension savings are heavily taxed above this allowance.
Inadequate retirement saving
“Our responsibility is to keep individuals out of destitution, not to improve the working classes,” said a senior government source.

Government proposals to tax pensions as a means of paying the U.K.’s way out of the Covid-19 economic hole would be a ‘double whammy’ on future generations. ”

Steven Cameron, pensions director at the life and pensions giant Aegon, said any proposition to diminish the higher tax rate on pensions, while likewise keeping the state pension triple lock, would hurt the younger ages the most.

Once again, the prospect of reforming pension tax relief for higher earners is being floated as a means to restore holes in the government’s finances.”

pension tax relief

Downing Street has repeatedly fought to keep the “triple lock” framework, which currently would see pensions rise by up to 6% one year from now. In their 2019 declaration, the Conservatives vowed not to raise the rates of income tax, national insurance, or VAT and vowed to hold the triple lock on pensions. Due to this, the Treasury is looking at options to raise money from pension contributors without affecting the triple lock. As per the Independent, the plans being considered are as follows:

  • Reducing the pensions lifetime allowance from £1,073,100 to around £800,000. Pension savings over the allowance are charged at 55% whenever taken out as a lump sum, or 25% whenever paid in any other way.
  • Reducing the level of pension tax relief available to higher-rate taxpayers from 40% to 20%.
  • Introducing new taxes on employer pension contributions.

Any change to tax relief that results in reduced take-home pay would risk increased ‘opt-outs.’ ”

The production of a culture where quitting is legitimate in the minds of people. This issue may particularly emerge if laborers endure immediate tax side-effects on employer pension commitments. The low savings rate implies there is now an issue with workers incapable of bearing to resign.
tax-privileged pension funds
Any decrease in tax relief is probably going to worsen this. Keep on supporting automatic enrolment and stay away from any progressions that hazard subverting or turning around is encouraging. There likewise should be clear motivating forces if more prominent degrees of savings are to be accomplished.

Author

  • Fahad Lateef

    Fahad is a Chartered Certified Accountant (ACCA), proficient in numeracy and impassioned with giving concise advice to a wide range of clients related to different industries. With an immense experience of over a decade, he has worked as an advisor on different projects run by audit giants like Deloitte and others. He is a firm believer in mutual growth and an established culture of embracing change.

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