Pension Tax Boost Safe For Now, Promises Minister

The latest speech from Secretary of State for Work and Pensions David Gauke has confirmed he is unlikely to sanction any moves to cut pension contribution tax relief any time soon.

Speaking at an industry conference, he told delegates that he will not shy away from making changes, but is keen not to alter the current tax relief rules.

Uncertainty has stalked the pensions world since Brexit that the government might slash the relief to release up to £35 billion to ease the stress on austerity budget cuts.

“Pensions tax relief was something which I worked very closely on and I think it was the previous chancellor who said there was no consensus as to how pensions tax relief should be reformed and a couple of years on I don’t think anything has particularly changed. I don’t think recent political events particularly changed that,” he said.

How the tax boost works

“I think there will be a continuation of debate but I don’t think there will be a particular consensus emerging and I don’t expect to see any fundamental changes in the near future.”

Pension contribution relief is the formula that tops up the money savers pay into their retirement schemes.

Higher and additional rate taxpayers gain the most – the standard top up is 20%, but they receive their boost at 40% and 45%.

For every £80 a basic rate (20%) contributes, the money paid into a pension is topped up to £100.

Higher and additional rate taxpayers contribute less and gain larger top-ups.

Tinkering around the edges

For a long time, politicians and pension experts have discussed the possibility of a flat rate top-up at 25% or 30%, but nothing has happened.

Besides pension contribution relief, Gauke has also recently spoken out about his hands-off approach to changing retirement saving in the near future.

“In the past, successive governments sometimes tinkered around the edges, making layers and layers of small changes, rather than making fundamental reforms,” he said.

“Since 2010, the government has worked hard to address this, making substantial reform where it is needed and thinking long term about how we can ensure that tomorrow’s pensioners can have the retirement they deserve.”