Rishi Sunak insists UK will not return to austerity
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Pension tax relief could be in the firing line for reforms, which could see millions paying more in tax, amid the Chancellor of the Exchequer’s plan to raise funds amid the coronavirus pandemic. A report by the Pensions and Lifetime Savings Association warned last month that as much as £10billion could be stripped from retirement savings and diverted to the Treasury. If aggressive reforms to pensions tax relief is the chosen route for Chancellor Sunak, nearly five million workers could be forced to pay an extra £2,000 in tax per year, the Telegraph reported.
But analyst at AJ Bell, Tom Selby, tells Express.co.uk that this could have a big impact on NHS workers.
He explained that those who work for the health service are in defined benefit schemes – which pays you a retirement income based on your salary and the number of years you’ve worked for the employer, rather than the amount of money you’ve contributed to the pension.
Mr Selby said: “The really big challenge if the Government wanted to make dramatic changes here – for example by scrapping higher-rate pension tax relief – they would inevitably hit senior NHS staff who have been on the front line during the COVID crisis.
State pension news: Sunak could hit pension tax relief (Image: getty)
State pension news: Sunak could anger NHS staff (Image: getty)
“This is because a sizable chunk of higher-rate relief goes to people in defined benefit schemes, most of which now exist in the public sector.
“So you’d be landing a fat tax bill on the doorsteps of the people Sunak and Johnson were clapping for at the start of the pandemic.”
Mr Selby argued that targeting people’s wealth with levies such as inheritance tax and capital gains tax would be a fairer way to raise funds.
He added: “I think wealth taxes are probably the fairest way – ensuring those with the broadest shoulders are targeted to take on the costs of paying for COVID-19.
“It would be fair, whether it is something they believe they can do politically is another thing. There will be challenges around people avoiding bills.”
Pension director at Aegon, Steve Cameron, also raised the issue of public sector workers and pension tax relief when speaking to Express.co.uk last month.
State pension news: The NHS has been at the forefront of the pandemic (Image: getty)
He said: “The lifetime allowance in these schemes is an annual pension amount of one twentieth of the ‘cash’ limit, or £53,655 a year.
“It would be interesting to see any analysis the chancellor has done over how many NHS doctors or head teachers might be hit by this change.”
There has also been speculation that the triple lock could also be modified.
The state pension increases each year in line with the highest of the following: the rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5 percent.
But because average earnings are predicted to spike by a massive eight percent, some feel this would be unfair on the younger generation.
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State pension news: Pensions could be hit by reforms (Image: getty)
State pension news: Sunak is Chancellor (Image: getty)
Mr Selby tells Express.co.uk that the triple lock will have to be changed.
He said: “The triple lock cannot be maintained as it has been applied over the past ten years or so.
“Historically the Government has used average earnings in the three months up until July as the figure to use for triple lock.
“Because of what’s happened with the lockdowns and how that affected earnings last year and the subsequent bounce back this year, we are almost certainly going to see a big spike for that average earnings figure.
“A lot of economists are expecting that figure to stand at about eight percent, which could cost the Chancellor anywhere up to around £3billion compared to what they thought they were going to spend.”