Osborne backs off from pension tax reform

George-Osborne-BW-700.jpgChancellor George Osborne has dropped plans to change tax relief in the 2016 Budget, because now is ‘not the right time’ to do so, according to Treasury sources.

The announcement comes a day after the Telegraph reported he was going to unveil a pension Isa system in the Budget. Radical reform within this Parliament has not been ruled out by the Treasury, with observers speculating that fears of upsetting Middle England just weeks ahead of the EU membership referendum may have influenced Osborne’s decision.

The Treasury’s statement appears to confirm there will be no fundamental changes to pensions tax relief at all in the Budget, meaning its consultation on pension incentives launched in the summer will remain unconcluded. Speculation is mounting that the changes will simply be moved back to the Autumn Statement.

The issue has caused a rift in the Government, with pension minister Baroness Altmann quoted in the Financial Times criticising the pension Isa idea, but work and pensions secretary of state Iain Duncan Smith supporting it.

Former pensions minister Steve Webb, now director of policy at Royal London, a historic supporter of a flat rate of tax relief, is calling for the Government to commit to no further changes for the rest of the Parliament.

Hargreaves Lansdown head of pensions policy Tom McPhail says: “With uncertainties over auto-enrolment and the EU referendum, it appears the Chancellor has decided to put his plans on hold. Investors should look on this as no more than a stay of execution though; with the amount of money involved, it would be optimistic to expect that the Chancellor will just leave pension tax relief untouched for the rest of this parliament. Anyone looking for certainty should take advantage of the current tax relief regime while it still exists.”

Association of British Insurers director general Huw Evans says: “We welcome the Chancellor’s sensible decision not to proceed with a pension Isa. Although we argued for a ‘Savers’ Bonus’ flat rate reform, the current system works well with auto enrolment and delivers valuable incentives to save for retirement. We now need a period of stability to ensure confidence can grow and the benefits of auto enrolment can be realised.” 

Royal London director of policy Steve Webb says: “If press reports are correct, it is good news that plans to turn the pension system upside down have been dropped.   Making major reforms simply to fill a short-term hole in the Chancellor’s budget would have been totally unacceptable.  After nearly a year of uncertainty what savers need more than anything is a period of stability.  The Chancellor should now rule out any changes in tax relief at least for the rest of this Parliament”.