Is Chancellor planning a middle-class stealth raid?

PAYING tax relief on pension contributions has long been a tried-and-tested way to encourage retirement saving and ease pressure on the state.

- By Harvey Jones

There’s a problem, though — it doesn’t come cheap. New HMRC figures show the total bill for pension tax relief hit £78.2billion in the 2023/24 financial year. That is a huge drain on Treasury coffers.

With Chancellor Rachel Reeves under pressure to balance the books, tax relief is starting to look like a soft target. Especially since almost 70% of that £54.2bn benefits higher-rate and additional-rate taxpayers.

Every Budget, rumours swirl that the Chancellor will take the knife to higher-rate pension tax relief. Given Reeves’s fiscal bind, speculation is likely to go into overdrive and advisers are bracing for change.

Many fear Reeves will try to “rebalance” the system by scrapping higher-rate relief and replacing it with a flat rate for all of 30% or 25%.

FAIRER

This would be more generous for basic-rate taxpayers, allowing Reeves to badge it as a fairer system.

But it would penalise middle and higher earners, including key public sector professionals.

David Little, financial planning partner at Evelyn Partners, said that with the “public finances in a parlous state”, cutting tax relief is tempting: “But it would be complicated and costly to administer, and would provoke a backlash from higher paid public servants such as doctors, teachers and police chiefs.”