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| Version 4 | Version 5 |
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| Pensions: George Osborne drops plans to cut tax relief | Pensions: George Osborne drops plans to cut tax relief |
| (about 2 hours later) | |
| Chancellor George Osborne has dropped plans to end or alter tax relief on pension contributions. | |
| A proposed scheme would have scrapped upfront relief, worth an estimated £21bn to savers, but made pension pot withdrawals tax free. | |
| An alternative option was to set a flat rate of tax relief, which may have been unpopular with higher earners. | An alternative option was to set a flat rate of tax relief, which may have been unpopular with higher earners. |
| Campaigners said he had missed a "huge opportunity" to tackle pension inequality and help the lower paid. | |
| Others said he was right to protect existing reliefs and radical reforms would have created new risks and imposed new administrative burdens on employers. | |
| A Treasury source said it was "not the right time" to make changes to pension tax relief. | A Treasury source said it was "not the right time" to make changes to pension tax relief. |
| Introducing arrangements similar to an Isa, with no tax relief on contributions but with withdrawals free of tax, would have given a significant short-term boost to the government at the expense of lower tax revenue later. | |
| An alternative option considered by the Treasury was for flat rate relief, which would have benefited basic rate taxpayers and cut reliefs for higher earners. | |
| Pension 'top-up' | |
| Mick McAteer, co-director of the Financial Inclusion Centre, told BBC Radio 4's Today programme he was "very disappointed" that the government had stepped away from tackling the "clear inequality in our pension system". | |
| He said reducing tax relief for higher earners could have been used to provide a pension "top-up" for low-income earners, including the self-employed and those on zero-hours contracts, "who are really facing a long-term pensions crisis". | |
| "It was a great opportunity," he said, and now "a huge missed opportunity". | |
| Conservative MP Mark Garnier, who sits on the Treasury select committee, told Today he favoured "a fundamental rehash of the pension system" but said a flat rate relief would have been "quite difficult to administer". | |
| Asked if the chancellor had missed an opportunity to make pensions fairer, he said: "He might have done." | |
| How pension tax relief works | |
| Pension tax relief is given on contributions at the rate of income tax - 20%, 40% or 45%. | |
| Someone at the 20% rate contributing £10,000 gross to their pension would have to pay £8,000 net, at 40% it would be £6,000, and £5,500 for those at 45%. So it favours the better off. | |
| Pension savers currently pay no tax on money they put in but pay tax on the cash they take out above their personal allowance. | |
| The amount anyone can save into a pension and get tax relief is capped at £40,000 annually and £1.25m in their lifetime. | |
| Mr Osborne had been expected to unveil changes in the Budget on 16 March, but was warned that introducing Isa-style arrangements could prompt a mass withdrawal from pension funds. | |
| Pensions minister Baroness Altmann made clear her opposition earlier this week, saying that making pension withdrawals tax free would create new risks. | Pensions minister Baroness Altmann made clear her opposition earlier this week, saying that making pension withdrawals tax free would create new risks. |
| "The freedom and choice reforms have put us in a place where's people's pensions can work well for them," she told the Financial Times. | "The freedom and choice reforms have put us in a place where's people's pensions can work well for them," she told the Financial Times. |
| "However, tax is a natural brake on them spending their pension fund too soon... We may decide that the current system is best." | "However, tax is a natural brake on them spending their pension fund too soon... We may decide that the current system is best." |
| Conservative MPs had also become concerned about the impact on their constituents of any move to flat rate relief, which would have reduced breaks for higher rate taxpayers. | Conservative MPs had also become concerned about the impact on their constituents of any move to flat rate relief, which would have reduced breaks for higher rate taxpayers. |
| Economic uncertainty | Economic uncertainty |
| BBC political correspondent Eleanor Garnier says Mr Osborne's decision is also a recognition of how fragile the EU referendum campaign is - abandoning the planned changes removes the risk of upsetting voters ahead of the vote in June. | BBC political correspondent Eleanor Garnier says Mr Osborne's decision is also a recognition of how fragile the EU referendum campaign is - abandoning the planned changes removes the risk of upsetting voters ahead of the vote in June. |
| An ally of the chancellor told the Times: "George has always been clear he wouldn't do anything to damage saving. | An ally of the chancellor told the Times: "George has always been clear he wouldn't do anything to damage saving. |
| "He's listened to what people have said and concluded that now isn't the right time, with uncertainty in the global economy and reforms such as auto-enrolment still bedding in, to turn things on their head. | "He's listened to what people have said and concluded that now isn't the right time, with uncertainty in the global economy and reforms such as auto-enrolment still bedding in, to turn things on their head. |
| "It is also clear that employers wouldn't welcome a wholesale change in the way they administer schemes. So he is not going to tear up the system of pension tax relief. There won't be any changes to tax relief at all in the budget." | "It is also clear that employers wouldn't welcome a wholesale change in the way they administer schemes. So he is not going to tear up the system of pension tax relief. There won't be any changes to tax relief at all in the budget." |
| The prospect of radical pensions reform had also been opposed by the pensions industry. | The prospect of radical pensions reform had also been opposed by the pensions industry. |
| Yvonne Braun, of the Association of British Insurers, said the scheme would have hit current savers and could have created a "fiscal time bomb" for future generations. | Yvonne Braun, of the Association of British Insurers, said the scheme would have hit current savers and could have created a "fiscal time bomb" for future generations. |
| She said: "Many savers would be worse off and it would also damage the economy more widely because of its impact on saving and investment." | She said: "Many savers would be worse off and it would also damage the economy more widely because of its impact on saving and investment." |
| Changes to the pensions system in recent years have included automatic enrolment into workplace pensions in 2012, and people aged 55 and over being allowed to take their retirement pots how they want rather than being required to buy an annuity retirement income - introduced in 2015. | Changes to the pensions system in recent years have included automatic enrolment into workplace pensions in 2012, and people aged 55 and over being allowed to take their retirement pots how they want rather than being required to buy an annuity retirement income - introduced in 2015. |
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