George Osborne Abandons Pension Tax Changes
Many are celebrating a victory for the British retiree and elderly as Chancellor George Osborne has abandoned the flat-rate pension tax changes proposed early last year.
Many observers said the flat-rate tax, intended to benefit the UK’s low-rate taxpayers by giving them the same benefits as high-rate taxpayers. However, due to the low rate, high-rate taxpayers may shift their pensions towards Isas and other investment options.
Aegon Head Steven Cameron said the pensions Isa idea was problematic in the first place. He said “It would have required all existing pensions to be frozen with a new arrangement put in place for future contributions, adding significant complexity for every existing pension saver, and not at all helpful as the government continues to roll out its flagship automatic enrolment initiative.
“It would also have made it very difficult for individuals to consolidate older and future pensions.”
Employer contributions would also find trouble according to Cameron. The single rate of relief would allow employers to treat their contributions as a benefit in kind.
“We may see adjustments within the existing framework such as further reductions in how much can be paid into pensions or even restrictions on new entitlements to tax free cash going forward. It may be that increasing the threshold for higher rate tax payers could effectively reduce the government’s pension tax relief burden,” said Mr Cameron.
“There is still a lot of speculation, so we shouldn’t be celebrating stability just yet.”