The latest proposed changes to the pension taxation system could have the biggest effect on the richest. Fellow conservative MPs have criticised the Chancellor George Osborne, calling the reforms bad politics.
50p for every £1
The Treasury are expected to make changes to the current taxation system, in which savers effectively receive a full tax refund on earnings which are then paid into a pension, up to a maximum of £40,000 in contributions a year. Currently this equals the tax rate you pay, so will be 20% for non-taxpayers and basic-rate taxpayers, 40% for higher rate tax payers or 45% for additional rate taxpayers. Chancellor George Osborne is rumoured to be replacing this system with a new flat-rate which offers savers 50p for every pound they put into a pension, providing 33 percent tax relief. This would be an increase for non-taxpayers and basic-rate taxpayers and a reduction for higher rate taxpayers and additional rate taxpayers.
High Earners Lose Out
Experts are warning that anyone paying 40% percent tax or more could end up losing out if the changes go ahead. Therefore, many experts are advising wealthier savers to urgently consider topping up their pension now before the changes comes into effect. This means they would save more in tax under the current system.
Moving to ISAs
Many have spoken out, worried that the changes could dissuade many from saving in pension funds, and instead spend their money or place them in ISAs.