This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.bbc.co.uk/news/uk-35732604
The article has changed 13 times. There is an RSS feed of changes available.
| Version 8 | Version 9 |
|---|---|
| Pensions: George Osborne drops plans to cut tax relief | Pensions: George Osborne drops plans to cut tax relief |
| (35 minutes later) | |
| Chancellor George Osborne has dropped plans to end or alter tax relief on pension contributions. | 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. | 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. | 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 that radical reforms would have created new risks and imposed new administrative burdens on employers. | Others said he was right to protect existing reliefs, and that 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. |
| The relief allows some of a person's earnings that would have been taken by government in tax to go into their pension instead. | The relief allows some of a person's earnings that would have been taken by government in tax to go into their pension instead. |
| Under the current system, pension savers receive tax relief at the same rate as their income tax - meaning basic rate taxpayers receive relief at 20% and higher rate taxpayers at 40 or 45%. | Under the current system, pension savers receive tax relief at the same rate as their income tax - meaning basic rate taxpayers receive relief at 20% and higher rate taxpayers at 40 or 45%. |
| The proposal to introduce 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. | The proposal to introduce 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. | 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. |
| Analysis - By Joe Lynam, business correspondent | Analysis - By Joe Lynam, business correspondent |
| So a policy which hadn't been announced will now not be announced. | So a policy which hadn't been announced will now not be announced. |
| And the big winners of this non-announcement will be wealthy people. At the moment not only do they earn more, they also get a proportionately bigger tax top-up from the government when they save for their retirement. | And the big winners of this non-announcement will be wealthy people. At the moment not only do they earn more, they also get a proportionately bigger tax top-up from the government when they save for their retirement. |
| If the chancellor had scrapped the tax relief entirely on pensions savings and created instead a new pensions Isa, that would have cost the better off (40p and 45p taxpayers) billions of pounds collectively. | If the chancellor had scrapped the tax relief entirely on pensions savings and created instead a new pensions Isa, that would have cost the better off (40p and 45p taxpayers) billions of pounds collectively. |
| The other plan which had been briefed out was to create a new pension tax relief rate of 25p or even 33p. That would have punished higher earners as well but not by as much as the Isa-style option. | The other plan which had been briefed out was to create a new pension tax relief rate of 25p or even 33p. That would have punished higher earners as well but not by as much as the Isa-style option. |
| It would also have encouraged saving for retirement by the less well off (20p taxpayers) by, in effect, giving a pound for every four they saved. | It would also have encouraged saving for retirement by the less well off (20p taxpayers) by, in effect, giving a pound for every four they saved. |
| Pension 'top-up' | 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". | 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". | 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". | "It was a great opportunity," he said, and now "a huge missed opportunity". |
| Conservative MP Mark Garnier, who sits on the Treasury select committee, acknowledged that the present system "massively favours those people who are earning more money" and told Today he favoured "a fundamental rehash of the pension system". | |
| However, he said a flat rate relief would have been "quite difficult to administer" and more thought should be given to what reforms would work best. | |
| Mr Garnier also said: "Those people at the top end are shouldering the burden of tax revenue, they are paying a greater amount of tax revenue and this [relief] is one of the few things they can call their own." | |
| Asked if the chancellor had missed an opportunity to make pensions fairer, he said: "He might have done." | Asked if the chancellor had missed an opportunity to make pensions fairer, he said: "He might have done." |
| Former Liberal Democrat pensions minister Steve Webb, who now works in the pensions industry, said Mr Osborne had been right to resist changes. | Former Liberal Democrat pensions minister Steve Webb, who now works in the pensions industry, said Mr Osborne had been right to resist changes. |
| He called for a "period of stability" in pensions policy in the interest of encouraging people to save for the long term. | He called for a "period of stability" in pensions policy in the interest of encouraging people to save for the long term. |
| How pension tax relief works | How pension tax relief works |
| Savers pay no tax on money they put into a pension but they do pay tax on what they take out each year beyond the personal allowance. | Savers pay no tax on money they put into a pension but they do pay tax on what they take out each year beyond the personal allowance. |
| The government also allows pensioners to withdraw 25% of their pot tax free as a lump sum. | The government also allows pensioners to withdraw 25% of their pot tax free as a lump sum. |
| The way the relief works is that some of a person's earnings that would have been taken by government in tax can be contributed to their pension instead. | The way the relief works is that some of a person's earnings that would have been taken by government in tax can be contributed to their pension instead. |
| Pension savers receive tax relief at the highest rate of income tax they pay. | Pension savers receive tax relief at the highest rate of income tax they pay. |
| This means that the cost of a £10,000 pension contribution would, in effect, be £8,000 for a basic rate taxpayer because otherwise £2,000 would have gone in tax. For a 40% taxpayer the saving would be £4,000, and £4,500 for those at the 45% rate. So present arrangements favour the better off. | This means that the cost of a £10,000 pension contribution would, in effect, be £8,000 for a basic rate taxpayer because otherwise £2,000 would have gone in tax. For a 40% taxpayer the saving would be £4,000, and £4,500 for those at the 45% rate. So present arrangements favour the better off. |
| The amount anyone can save into a pension and receive tax relief on is capped at £40,000 annually and £1.25m in their lifetime. | The amount anyone can save into a pension and receive tax relief on 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. | 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 that Mr Osborne did not want to put people off saving. "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. |
| What is your reaction to this news? You can get in touch by emailing haveyoursay@bbc.co.uk with your views. | What is your reaction to this news? You can get in touch by emailing haveyoursay@bbc.co.uk with your views. |
| Please include a contact number if you are willing to speak to a BBC journalist. You can also contact us in the following ways: | Please include a contact number if you are willing to speak to a BBC journalist. You can also contact us in the following ways: |
| Or use the form below | Or use the form below |