Pension Savings for all may be affected in November 2020 Budget Tax Changes
Pension Savings are typically set aside from pre-tax earnings and can be thought of as a useful took to build savings. Recently, the government announced that it would be increasing the retirement age from 55 to 57 and additional state decisions could impact pensions in the coming months.
Rishi Sunak has introduced some new measures to recuperate much of the stimulus paid out in recent months that led to stabilizing the economy, which will see the British tax payer like in most setbacks to pick up the tab.
While deemed by many as necessary, they have nonetheless created a huge public expense which must be covered. On this, there have been many reports released on what the Chancellor of the Exchequer may target for filling the coffers.
Reportedly, everything from inheritance tax to National Insurance may be considered in tackling the debt which has stretched into the billions. Understandably, the Chancellor is keen to refill the government’s coffers following the pandemic, but there is worry that this latest hit will have a detrimental effect on people.
It is without doubt that the Chancellor’s generous financial efforts to help families and businesses during 2020 will bear a cost to our lives in the future.
Recent indications of the potential scrapping of the higher rate pension tax relief appears to be an element of his plan for some of the Coronavirus debt to be repaid. Current pension tax relief legislation gives equality. Whatever tax rate you pay, you can take advantage of substantial tax reliefs in pension schemes.
This means that all generations including high earners will see an impact on their pension savings. Gone are the days of generous Final Salary schemes with most FTSE listed companies virtually not offering any of this type and have replaced with Defined Contributions schemes.
The reduction in tax relief for higher rate taxpayers, will make it even more difficult to save for retirement and may lead to inferior pension pots in retirement, in turn increasing our reliance on an already struggling State Pension. While a flat rate of tax relief may be on the cards, which would be good news for non-taxpayers and basic rate taxpayers, if the flat rate goes below 30 percent, pension saving may appear unattractive for the higher rate tax payer.