NOVEMBER saw the Autumn Statement delivered for the first (and last) time by the Chancellor Philip Hammond (next year will see two Budgets, with this then becoming a Spring Statement and Autumn Budget from 2018), with those of us involved in all things pensions listening with bated breath to see if any announcement was made regarding tax relief on contributions.

At present, tax relief is provided (on allowable contributions into registered pension schemes) at an individual’s marginal rate of tax (i.e. basic, higher or additional rate, or perhaps, a combination of such, depending upon the income and contribution level), offering a generous uplift to any contribution and possible reduction in your tax liability, and thereby incentivising those of a higher income tax status significantly more than someone further down the pay scale.

A reference to the generosity of the current basis was made in the small print of the consultation document that came with the Statement, and which states: “The cost of tax and National Insurance contributions relief on pension savings is one of the most expensive sets of relief offered by the government? with around two thirds of the tax relief going to higher and additional rate taxpayers”. It can be clear, therefore, that this should be deemed a “watch this space’ for such relief, with the likelihood being that we will revert to a reduced and possibly, flat rate of relief at some point moving forward; quite possibly sooner rather than later.

One aspect relating to pensions that will change now is that of the Money Purchase Annual Allowance, or rather, the amount an individual can continue contributing each year once they have begun drawing income benefits. This currently stands at £10,000 and Government will now consult on this reducing to £4,000. The logic behind this being that those workers aged over 55 who have received the attractive tax relief referred to on any pension contributions already made, should not then be able to make withdrawals (only paying tax on 75 per cent of such, due to the tax free element available) and then effectively recycle this back into a pension as a further contribution, thereby receiving upfront tax relief again, and so on.

Whilst in essence this will not affect too many people, it does demonstrate the government’s intention to rein in the reliefs available where it feels these to be overly generous. As the European Council President, Donald Tusk, alluded to recently on the subject of Brexit and those people believing that you can have your cake and eat it – “I propose a simple experiment. Buy a cake, eat it, and see if it is still there on the plate!’

That said, we believe pensions will still continue to provide the cornerstone for people’s retirement plans moving forward. If you would like to discuss any aspect concerning your pension or investment plans, Peter can be contacted on 01604 621421 or by email at pbrydon@caves.co.uk

Tax assumptions may change if the law changes, and the value of tax relief will depend upon your individual circumstances. The tax assumptions contained in this article are based on our understanding of the current and proposed UK pensions tax legislation. You should consult your own tax advisers in order to understand any applicable tax consequences.

The value of an investment and the income from it could go down as well as up. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. Cave & Sons Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 143715