A recurring theme in the lead up to each Autumn Statement and Budget is the threat that higher rate pension tax relief could be lost. These warnings have grown stronger over the last few years as the country struggles with a large budget deficit and high levels of borrowing. In this context, pension tax relief is seen as a potential way to reduce government expenditure.
Although higher rate tax relief has so far escaped the axe, the annual tax advantaged contribution limit has been reduced from a high of £255,000 to just £40,000 today. And, the lifetime allowance has also been cut from a high of £1.8m to £1m today. One million pounds might sound like a lot, but it is only enough to buy an annual income of about £20,000 for 60-year-old today.*
Given the current economic climate, where the country’s annual borrowing is not falling as fast as expected, the threat that pension tax relief could be targeted remains high.
Higher rate taxpayers might therefore consider the run-up to Autumn Statements and Budgets as an opportunity to pay more into their pension.
We don’t know any more than anyone else; only the Chancellor of the Exchequer and his closest confidants within government know whether a change to tax relief is imminent. But that doesn’t mean we can’t take control of our own pension planning by taking guesswork out of the equation.
If you are planning to pay more money into your pension, doing so in advance of Autumn Statements and Budgets could make good financial sense.
- Source: Money Advice Service 8/11/2016. Joint-life annuity 50% partner’s pension, first life age 60, second life age 57, increasing in line with inflation, no guarantee period, postcode EH42