Pensions could be transformed into something closer to an Isa structure, with tax relief on contributions removed, Chancellor George Osborne has told the House of Commons in today’s Budget speech.
The Chancellor has launched a consultation into moving from an exempt, exempt, taxed (EET) structure to a taxed, exempt, exempt (TEE) structure, which would enable to bring forward savings of several billion pounds a year.
The cash outflow would move back in time, by up to a generation, as upfront tax relief, paid out to today’s workers, would be replaced by income tax foregone from today’s workers, once they had retired a generation later.
The announcement follows significant lobbying on the issue by Michael Johnson, a fellow of the Centre for Policy Studies.
Osborne said: ”We have already taken big steps with the single tier pension and pension freedom reforms. But Britain is not saving enough. I am open to further radical change.
”Pensions could be more like Isas, where you pay tax on the way in and get tax relief on the way out. This idea and others like it need public scrutiny so I am today publishing a green paper on the framework for pensions and Isas.”
Jelf Employee Benefits head of benefits strategy Steve Herbert says: ”Although the Chancellor said he would not be prejudging this consultation, you have to think that some sort of restriction on pensions tax relief is coming. That leveling of the playing field between Isas and pensions, which Michael Johnson has been talking about some time and which is already happening to an extent with the pension freedoms, could bring massive savings to the government.”
Talbot and Muir head of pensions technical Claire Trott says: “Publication of a Green Paper to review pensions tax relief and taxation on income going forward should be welcomed, any kind of consultation where the outcome isn’t already predetermined is a step forward from a Government telling the industry how to run pensions when they don’t necessarily understand the implications. The implications of removing up front tax relief on pensions could be significant, removing the incentive for many to save, it will also add another regime to the many regimes we are already dealing with making pensions even more complicated when people come to access their benefits.”