Pension tax relief billions could be up for grabs by future chancellors

Published:  2 Mar at 6 PM
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Is the pension tax relief top-up scheme safe from being looted by future British Chancellors of the Exchequer?

If you’re saving into a pension scheme with the intention of retiring overseas you’ll need to keep a close eye on government rule changes. The government’s pension tax relief scheme is made up of the money the government pays in to top-up pension contributions paid into personal and workplace retirement savings. Presently, it stands at £38.6 billion sterling, with some financial experts believing it’s a tempting honeypot for future chancellors looking to avert Brexit-related economic problems.

Over the past several years, financiers have forecast either a scrapping of the scheme or changing of the rules resulting in a reduction in the amount put aside, but the tax break has remained strong. Now the same financiers are asking how much longer it’s to be maintained in its present form. Indications of changes ahead were noted when the government cut the lifetime allowance of £1.8 million to one million, with the annual allowance cut to £40,000 for average savers and just £10,000 for high earners.

According to figures from HM Customs and Excise, pension contributions reached an all-time high of £24.6 billion during the 2016/17 tax year, an increase of £300,000 million on the previous tax year. Tax and pension analysts believe most would have thought the tax relief bill would increase as automatic enrolment is rolled out to employers and millions more workers, but the reduction of high earner incentives to save has somewhat stemmed the tide.

At the same time, HMRC figures show tax relief on self-employed pension contributions are now at a standstill of around £700 million, representing less than half their level during the 2007/2008 tax year. In addition, employers’ pension contributions national insurance exemption costs are increasing. The amount, separated from HMRC’s main interest relief calculations, now stands at £16.2 billion due to an exemption on auto-enrolled workplace pension contributions by employers. Whatever moves the government makes, those saving for a new life as expats need to carefully consider their alternatives.
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