Chancellor Rachel Reeves recently warned of “difficult decisions” concerning taxes in the forthcoming October Budget, highlighting a £22 billion fiscal gap. Could pension tax breaks be in jeopardy?
The government has spent a staggering £189 billion on pension tax relief between 2019-20 and 2022-23. The cost has been climbing steadily, with HMRC estimates revealing it hit a record £48.7 billion in 2022-23. This figure surpasses the combined annual budgets of the fire services, police, courts, and prisons.
One of the drivers of this surge is the ongoing freeze on tax thresholds. Pension tax relief is tied to income tax rates, and as more individuals find themselves pushed into higher tax bands, the cost of these reliefs has soared. Unless changes are made, this bill will continue to rise as the freeze persists.
The Institute for Fiscal Studies (IFS) has suggested that switching to a 30% flat-rate pension relief could save the government £2.7 billion per year, covering more than 10% of the fiscal shortfall.
Given these pressures, could reducing pension tax reliefs become too tempting for the Chancellor to resist? What would a 30% flat-rate relief mean for savers, and how does the current system work? If you’re concerned about potential cuts to tax relief, what steps should you take?
While this blog speculates possible outcomes, the Chancellor’s plans remain unclear. However, ensuring your pension is well-managed remains crucial. If you’re approaching retirement and require expert guidance, now is the perfect time to seek comprehensive retirement planning support from UnaVida Wealth Management Ltd.
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