Treasury leaves door open to tax raid on pensioners

Telegraph

5 days ago

Labour has left the door open to a tax raid on pensioners as Rachel Reeves struggles to balance the books.
Pensions minister Torsten Bell said it was important that people were not 'taxed twice' on the money they saved for retirement, but refused to rule out a broader raid.
It suggests that reliefs such as the 25pc tax-free lump sum currently available to retirees could be in the firing line.
The news came as the Government paved the way for the state pension age to be raised and suggested millions of workers would have to sacrifice more of their pay to prevent a looming retirement crisis.
Mr Bell, who is also a Treasury minister, declined to rule out a tax raid on pensions, only pledging to ensure the tax system continues to encourage saving.
He highlighted that the Treasury hands tens of billions in tax relief to savers in private pensions every year.
Mr Bell said: 'We have a system of pension tax relief costing around £70bn a year that does provide strong incentives for saving. And that's a good thing.
'What does the pension tax system do? It makes it easy for people to smooth their incomes over their lifetime. We're not taxing you twice. That is an important feature of most tax systems, and it will remain an important feature.'
Asked if he could rule out any future tax raid on pensions, Mr Bell said: 'I can't rule out any change on any tax.'
At the moment, savers do not pay income tax on contributions to pension schemes. Instead, any tax someone would normally pay is added to the pension in the form of tax relief at a person's marginal rate.
This means that basic rate payers get a relief equal to 20pc of their payments to cancel out the income tax that would otherwise be due. Higher rate payers – those earning more than £50,270 – get relief of 40pc, and most additional rate payers earning more than £125,140 get 45pc.
In addition, most savers can take 25pc of their pension pot tax-free once they reach the age of 55, up to a maximum of £268,275.
The Chancellor is said to be weighing up a tax raid on pensioners as she attempts to find ways to plug a black hole in her budget.
The Treasury has long wanted to tax pension savings and has a detailed plan drawn up for a raid that has been presented to successive chancellors since the coalition government took power in 2010.
Mandarins have previously floated proposals for a flat 30pc rate of pension tax relief – meaning that higher rate payers would pay an effective 10pc tax charge on their retirement contributions for the first time.
The plan would affect up to 6m higher and additional rate taxpayers, costing the wealthiest savers around £2,600.
Ms Reeves has also spoken in favour of restricting relief on pensions but has since distanced herself from the proposals, insisting she has 'no plans' to change the current regime.
The Times reported the Chancellor is reluctant to publicly rule out a wealth tax as she considers an increase in capital gains tax and a raid on pensioners.
Both measures could be seen as a form of wealth tax, leaving her open to criticism if she rules it out, and both measures are said to be under consideration.
It comes as Ms Reeves faces pressure from Labour backbenchers to introduce a blanket wealth tax. Earlier this month Lord Kinnock said the party was 'willing to explore' the idea and suggested the Government could raise an extra £10bn a year by imposing a 2pc tax on assets worth more than £10m.
Backbenchers are pressuring the Government to consider the proposal and No 10 has so far refused to rule out a wealth tax.
However, there are fears that such a policy would trigger a fresh exodus of the rich and could prove self-defeating.
Many wealthy residents are already moving abroad after Ms Reeves scrapped non-dom status and introduced inheritance tax on overseas trusts earlier this year.
Concerns about a potential raid on pensioners came as the Government launched a pension commission on Monday and warned that almost half of working-age adults are not putting any money into a private pension.