Summer Budget 2015: Is the government about to change how it taxes pensions?

Emma Haslett
Follow Emma
High earners may be about to hit by increased tax on their pensions (Source; Getty)

With the summer Budget now just days away, much of the finance sector has busied itself trying to second-guess what the chancellor will say when he takes to the despatch box. And one briefing paper, quietly published yesterday afternoon, might provide a clue: changes to pension taxation.

Read more: How investment trusts can boost your retirement savings

The Conservatives' pre-election manifesto pledged to restrict the annual allowance for those earning more than £150,000 a year - and George Osborne could be preparing to make good on that promise, suggested Tom McPhail, head of pensions research at independent financial adviser Hargreaves Lansdown.

"Our great concern is that the government will simply cap tax breaks for higher earners. This would do nothing for the vast majority of the population except make the pension system marginally more complicated than it already is," he said.

"Higher earners get the most tax relief, yet arguably need it the least," pointed out McPhail. "It is important to note though, that they also pay most of the income tax in the first place."

So could this be Osborne's next big move? It wouldn't come as a complete surprise: over recent years, Osborne has made overhauling the pensions system one of his biggest priorities. Last April he took the bull by the horns and introduced new "pensions freedoms" which allowed savers to withdraw their pensions - prompting upheavals in the pensions system.

Although the policy was popular among voters, a study published yesterday by pensions reporting company Avacade Future Solutions showed that while 60 per cent of those eligible intended to withdraw their cash, 73 per cent haven't got around to it yet. Which suggests that while Osborne's reforms have gone down well in principle, savers are still worries about having enough money to see them through retirement.

Related articles