Multiple experts have suggested the Chancellor could make pensioners bear the brunt of tax increases in March’s Budget announcement. Romi Savova of PensionBee, a pensions firm, said this week that the obvious tax grab would be pension tax relief. She said: “This has long been talked about and the likelihood of it happening increases with time. It can’t stay as it is forever and it is easier to do during the crisis, politically speaking.” Paul Green, the CEO at Over50smoney, said this month: “Pensions are complex and their tax treatment has been under discussion for years.
“It looks highly likely that the Chancellor will reduce the amount of tax relief on pension contributions.”
As Mr Sunak assesses his options, former Pensions Minister Steve Webb warned this month the “clock is ticking” on pension tax relief.
He said that even if pensioners come out of the Budget in March unscathed, there “will be a keen desire to spend less on it”.
Mr Webb wrote for Money Marketing: “Those who want to see pension tax relief protected may only breathe a temporary sigh of relief.
“There will be a keen desire in the Treasury to spend less on pension tax relief, and there must be a chance of a consultation document this year on more fundamental changes, potentially including reduced rates of relief and caps on tax free cash.
“The risk is that we end up with a system which is both less generous overall and much more complex — not something most in the industry would want to see.”
Claire Walsh, a personal finance expert, said last week it would be “political suicide” for Mr Sunak to change the tax-free cash rules.
She added: “It is wrong to pull the rug from all those people who’ve saved hard on the premise of tax-free savings.”
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Another expert, Tom Selby of AJ Bell, commented on the potential choices the Chancellor could make within his upcoming Budget to raise funds.
He said: “A simple way to raise tax revenue from the £40billion pensions pot might be to tweak the existing annual allowance, which currently stands at £40,000.
“If this were reduced to, say £30,000 or even £20,000 – in line with the cruet ISA allowance – the Chancellor could save some cash while leaving the retirement savings options of the majority unaffected.
“However, such a move would also risk sending an anti-savings message and add to the litany of annual and lifetime allowance cuts we have seen in the past decade or so.”
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Richard Murphy of Tax Research UK warned against tax increases in an interview with Express.co.uk last year.
He said: “At first, Rishi Sunak completely underestimated what was going to happen, it was a complete disaster, because he hadn’t realised how disastrous coronavirus was going to be.
“But he was back a week later with the furlough scheme, it was smart, quick, some people lost out when they shouldn’t have done.
“Now Sunak’s obsession with debt is kicking in again.
“If he opts for austerity and tax hikes, then frankly we are heading for depression rather than a recession.”