The pension annual allowance will remain at £40,000, and chancellor Philip Hammond has also resisted tinkering with the thorny issue of pension tax relief.
Chancellor Philip Hammond cold-shouldered speculation that pensions would be meddled with in order to fund future spending pledges.
Various pension experts had feared a cut to the annual pension allowance, with many pencilling in a reduction from £40,000 to £30,000 as a means of raising the £20 billion of additional funding that has been promised to the NHS.
But in today’s Budget (29 October), Hammond resisted the urge to tinker with the allowance, meaning the allowance will remain at £40,000. Nor did he touch the current lifetime allowance of just over £1 million.
In a move that was more widely expected, Hammond also opted against tinkering with the thorny issue of pension tax relief. For some time now there have been concerns higher-rate pension tax relief is in the government’s sights, but once again it proved to be merely speculation.
George Osborne, the former chancellor, consulted at length on possible reforms to the tax relief on pension contributions, although he stopped short of implementing change. However, the system is expensive, with pension tax relief costing the government £39 billion in the last tax year.
Steve Webb, director of policy at Royal London, comments: “The chancellor’s windfall from better-than-expected borrowing forecasts meant that he did not have to cut back pension tax relief in this Budget.
“But having described the system as ‘eye-wateringly expensive’, it is likely to be only a matter of time before this chancellor – or his successor – comes back for more. Today’s respite for pension tax relief is likely to be only temporary.”
That’s all the more likely as critics say that the system favours the wealthy, as higher-rate and additional taxpayers gain the biggest tax relief on contributions.
A radical move to introduce a flat rate of pension tax relief has been mooted for some time, but as things stand today the proverbial can has been kicked down the road in regard to how, over the long term, people are incentivised to pay money into pensions.
Although it was a quiet day on the pensions front the rise in the higher rate tax threshold, from £46,350 to £50,000 next April, will result previously higher-rate taxpayers slipping into the basic rate tax bracket.
As a consequence, the tax relief they receive when putting money into a pension will be halved from 40% to 20%.
Steven Cameron, pensions director at Aegon, says: “Increasing the higher rate tax threshold to £50,000 from next April will mean fewer people are higher rate tax payers with some moving to be basic rate tax payers.
He adds: "While few will object to this, it does affect pension saving as individuals receive tax relief, or a government top-up, based on their highest marginal income tax rate of 20%, 40% or 45%.
"For those moving down into the basic rate tax bracket, their government top-up is halved, meaning less may be going into their pension."