The government will not give its response to the consultation on pensions tax reliefs and incentives until next year’s Budget and not in next month’s autumn statement as had been widely predicted.
Responding to a question from Tory MP Richard Graham in the House of Commons today, Chancellor George Osborne said that the consultation would receive a full response in the Budget.
Experts say the delay could indicate that the government needs the extra time because is intending to make fundamental reforms to the system, such as a switch to a Taxed, Exempt, Exempt pension Isa-style mode.
Osborne said: “We are open to consultation on the pensions taxation system at the moment. It is a completely open consultation that will lead to a genuine Green Paper, and we are receiving a lot of interesting suggestions on potential reform. We will respond to that consultation fully in the Budget.”
McPhail says: “The government’s decision not to respond to its consultation until next year is a reflection of the complexity of the pension tax system and the challenge in introducing any reforms. We welcome the fact that they are taking a measured approach rather than rushing at the problem.
“This is a mixed blessing for higher earners. A quick response would have meant no change. The fact that they want more time to work on it suggests they are still pursuing fundamental reforms; I believe these are likely to lead to cuts in the tax breaks offered to higher earners. A word to the wise: seize this opportunity to maximise your pension funding while you can still benefit from these tax breaks, they probably won’t be around for much longer.
“Over the next 6 months we’re likely to see a rush of higher earners looking to make the most of the current system while they still can.”
Old Mutual Wealth pensions technical expert Jon Greer says: ”This is a signal of intent from Government that indicates they are seriously considering a major overhaul of pension tax relief. The Green Paper has been positioned as an open consultation, but today’s confirmation that it will form part of Budget 2016 suggests that we can expect significant reform next year. For some time there has been a growing sense that the Treasury no longer support the current pension tax relief system and that now seems almost certain. Precisely what system we end up with remains to be seen but it is crucial we have an approach to pension tax relief which is simple for the public to understand and sustainable from a public finance perspective.”