Chancellor’s tax attack on pensions will hit middle class savers the hardest
Middle class savers must act now on their retirement savings before George Osborne introduces the flat-rate of pension tax relief.
The Chancellor, it is reported, is planning a dramatic overhaul of the pension tax relief system by implementing a flat-rate of between 25 and 33 per cent.
Pension tax relief is designed to encourage people to save for their retirement, costing the UK some £34bn per year. This has urged Mr Osborne to reconsider the relief to higher income earners.
As such, it is anticipated that the system, which provides individuals tax relief on contributions in accordance with their marginal rate of tax, will be abolished in this year’s Budget.
Those who have paid higher tax rates have previously been granted more relief on their retirement savings, whereas now it appears that this longstanding practice is to be given the chop.
Middle class savers therefore, who have been carefully saving for their retirement will be hit hard by the Chancellor’s plans.
As I was quoted as saying in The Independent and The Economic Voice and others this week, millions of individuals in Britain who currently receive between 40 and 45 per cent relief could indeed see a considerable drop in their pension pot.
Therefore, with the plans expected to be announced in the March Budget, the time for the higher income earners to act is now. Those who wish to make larger one-off contributions to their pension in order to make the most of their retirement savings should take action as soon as possible.
This latest bombshell, yet another tax attack on pensions, shows how the government views pension savings as the go-to target in order to boost its coffers.
The government’s case to home in on pensions is straightforward, as there’s a significant amount of money in them, most of which belongs to better-off members of society who get tax relief.
Consequently, the Chancellor’s decision to introduce the drastic changes to the pension tax relief system, in effect, penalises individuals who have worked hard and been successful, and who have sensibly saved for their retirement.
In fact, the move is incredibly ill-considered. Saving for retirement has never been more important and an ever more personal responsibility.
Discouraging people to save goes against the country’s future need for a financially secure older generation in order to achieve sustainable long-term economic growth