The Chancellor has confirmed that a flat-rate state pension of £140 will be introduced, with proposals to be brought forward this spring.
But widely trailed predictions of reductions in pensions tax relief will not go ahead.However, to stop tax avoidance there will be an overall cap on income tax reliefs claimed by individuals of 25 per cent of income where more than £50,000 of relief is being used.
Osborne said: “I pay tribute to the work my honourable friend the pensions minister has done on this. Such is the complexity of this means tested system, only someone like our Pensions Minister can work out exactly what someone’s entitled to – and what they need to save. So I can confirm that we will introduce a new single tier pension for future pensioners, set above the means test. This is currently estimated at around £140. It will be based on contributions. And it will cost no more than the current system in any year. We will bring forward further details later this spring.
“I don’t intend to make any significant changes to pensions relief in this Budget. But to make sure that those on the highest income contribute a fair share I am introducing a new cap on those reliefs that are currently uncapped. From next year anyone seeking to claim more than £50,000 of these reliefs in any one year will have a cap set at 25 per cent of their income. We’ve capped benefits. Now it’s right to cap tax reliefs too.”
Robin Hames, head of technical, marketing and research at Bluefin, says: “The Chancellor’s decision to introduce a single flat-rate state pension is welcome news for people and the companies they work for.
“The complexities of the upcoming automatic enrolment process meant that alongside the existing state pension setup, some employees enrolling into a workplace pension scheme would actually have found themselves penalised financially when they reached retirement – a wholly unattractive prospect. This new flat-rate state pension, once implemented, will eliminate that scenario and make pension planning much simpler.
“However, with the implementation date of this flat-rate still some way off, this situation will remain in the interim.”