Pensions… but what about the tax relief?
Thursday 26 March 2009
I have been reading comments made by Mark Wilkinson at Axa about how the government may treat pension tax relief.
He says “The cost to taxpayers of the bank bail out and the other fiscal measures being taken to prevent the recession becoming a depression are phenomenal. There are estimates ranging from £150 billion to £1.3 trillion (almost equivalent to the gross domestic product of the UK). Whatever the final figure proves to be, the Exchequer will need to raise taxes to fill the gap and the pre-Budget report announcements of a top rate of income tax of 45% for those earning over £150,000 per year, and the claw back of personal allowances for individuals with taxable income over £100,000, are just the start of this.
For those of the ‘glass half-full’ persuasion, the introduction of the 45% tax bracket and top marginal income tax rates of 60% for some earning over £100,000 per year could provide a stimulus for high earners to make personal contributions to registered pension schemes. This, of course, presupposes that tax relief at one’s highest marginal tax rate will continue.
Could one of the consequences of these very difficult economic times be the abolition of higher rate tax relief on pension contributions? According to HM Treasury figures, the estimated cost to the Exchequer of pension tax relief is £36 billion per year. Of this, higher rate taxpayers receive more than half. Having decided to increase the top rate of income tax it is not stretching credibility too far to suggest that the next announcement will be the abolition of higher rate tax relief on pension contributions and ‘tax-free’ lump sums for higher earners.
Of course, these tax proposals are not due to take place until after the General Election, and a possible change of Government, in tax year 2011/2012. There have been recent reports, however, that a number of Labour MPs are pushing for the tax changes to be brought forward to commence next month.
Would a change of Government make a difference? Clearly this is impossible to answer but in an interview on the BBC on 19 March 2009, David Cameron was questioned about Conservative Party public spending plans if they take office. He seemed to give a clear indication that the better off would need to play their part in balancing the public finances during this recession.
So, what’s the message for clients who pay higher rate tax? If you are in a position to do so, maximise your personal contributions to registered pension schemes this tax year, as you may lose the opportunity to do so in the near future and, if you are at an age where retirement is a possibility, talk to an adviser about the pros and cons of drawing your pension commencement lump sum.”
Whatever the outcomes from the government, their must be an upward pressure on tax..however it is dressed up by the government, irrespective of colour. Rushing to invest on the basis you might lose out is not prudent, but a measured and thought out response is. Planning your actions makes perfect sense and generally advisors are ideally placed to help in that planning.''
Food for thought!
posted by Murray Round Wealth Management @ 14:50,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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