Britain's largest mutual insurer has warned chancellor George Osborne could commit “daylight robbery” in next month’s Budget with major new changes to pensions.
In a new report today, Royal London said a pensions ISA or a flat rate of pensions tax relief would hurt existing savers and discourage future saving.
A pensions ISA, which was first floated in a Green Paper last year, would see retirement savings change to a system where tax is charged on contributions but not withdrawals, which is the opposite of the current system. Osborne said last October that he would “respond fully” to the Green Paper at next month’s Budget.
Industry experts have told City A.M., however, that they expect Osborne will introduce a new flat rate of pensions tax relief instead of the ISA. With the flat rate, basic rate taxpayers would receive more tax relief than they currently do, while higher rate taxpayers would see their tax relief slashed.
But former pensions minister Steve Webb, who is now the policy director at Royal London, rejected both ideas, saying: “A pension ISA steals billions of pounds in tax revenues from the next generation who will need the money to fund the public services of an ageing society. And if the chancellor opts for a low flat-rate of tax relief, he will be stealing billions of pounds today from the support we give to hard-pressed savers.”
A Treasury spokesperson said the government has not yet taken a decision on reforming pensions tax relief.