Steve Webb, the pensions minister, is calling for a flat rate of tax relief on future pension contributions as he claims current tax breaks favour the wealthy. He believes that the flat rate of tax relief should be somewhere between 20% and 30%.
He thinks that the current tax breaks are “unfair” and should be cut back because they are “heavily skewed” towards the wealthy.
This would end a system in which savers get relief at their highest marginal rate and effectively means higher-rate taxpayers pay just 60p to put each £1 into a pension.
The Treasury spends £54bn a year on this relief and both the Labour Party and Liberal Democrats have suggested they will seek to reform it, should either enter Government following the 2015 general election.
If you are a higher rate tax payer, you may want to consider maximising personal pension contributions now, to secure relatively high tax relief.
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