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Chancellor mulls pension tax relief reform

12th February 2020

Chancellor Sajid Javid is reportedly considering cutting pensions tax relief for high earners in next month's Spring Budget.

Media reports suggest Javid may be on the verge of reducing high earners' relief from their marginal rate of income tax to 20% to make the system fairer for lower earners.

Currently, savers get pensions tax relief when they put money into their pension and are liable for tax when they receive income from a pension.

The tax relief on a saver's pension contributions can be reclaimed at the saver's marginal rate of income tax.

This enables those in the higher or additional-rate bands to claim the relief at 40% or 45% in England, Wales and Northern Ireland.

At present, the system is believed to cost the Treasury around £35 billion a year in lost income tax revenue and the reform could raise £10bn a year.

Steven Cameron, pensions director at Aegon, said:

"Rushing to cut pensions tax relief could do long-term damage to Britain's retirement savings, so we urge the Chancellor to avoid going too far, too fast.

"If the relief is cut, people will change their behaviour and might not bother saving using a pension."

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