On Pension Awareness Day (September 15), a leading wealth management expert warns the Government’s Budget in November could make it even more difficult for people to save for retirement.
As the cost of self-employment grants, furlough payments, business support loans and even the Eat Out Help Out schemes spiral, Chancellor Rishi Sunak is reported to be looking into raising a string of different taxes, including pension tax relief.
Mark Parkinson, Partner at MHA Tait Walker Wealth Management, believes there could be a side-effect in the Budget which may lead to inferior pension pots for many people in retirement in the future, increasing the reliance on State Pensions.
He said: “Understandably, the Chancellor is keen to refill the Government’s coffers following the pandemic, but I worry that this latest hit will have a detrimental effect on people.
At this time, it’s more important than ever to be saving for an uncertain future. This is going to be particularly difficult for Millennials and Gen-Z’s who are already struggling to plan for retirement and could be hardest hit.
Mark said: “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.”
Mark commented that people would be wise to take steps now to mitigate the impact and said they should consider all available financial planning options to protect their wealth.
“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, whether on the cusp of the higher rate tax bracket or a high earner will see an impact on their pension savings,” he added.
“The days of expensive final salary schemes dominance have almost disappeared, and in their place, we now have Defined Contributions schemes. It is evident that the reduction in tax relief for higher rate tax payers, 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-tax payers and basic rate tax payers, if the flat rate goes below 30%, pension saving may appear unattractive for the higher rate tax payer.”
With the full economic and financial implications of Covid-19 still far from clear, Mark hopes the Chancellor could defer announcing too many major changes in November saying,
“Any pensions tax relief changes are going to be complex. A consultation in the autumn might prove to be a better way forward to ensure any changes work across the full range of pensions.”
