Retirees have been warned that Rachel Reeves could come after tax relief on pension contributions to fill her Budget black hole. Currently, higher-rate earners do not have to pay 40% tax on their retirement funds, and basic-rate taxpayers are spared the 20%. However, this could all change if the Chancellor slashed pension relief to the basic rate of income tax.
Economists revealed that this would bring in £15 billion a year for the Government, though it could put a double burden on retirees who also pay income tax on their pensions. There are also concerns that pensioners are already struggling to support a comfortable lifestyle with their savings, and slashing pension relief would only add to this pressure.
The idea was floated and ultimately rejected at last year’s Budget, though that was before Ms Reeves was forced to find a staggering £30 billion for public finances.
There have also been questions over the future of the Triple Lock, which gaurantees that the state pension is not overtaken by inflation or wage increases.
This comes after the Office for Budget Responsibility forecast that the cost of the Triple Lock would be three times higher by the end of the decade than its original estimate.
However, the scheme could be protected by reducing pension relief, which would allow the Government to secure vital funds without a major overhaul.
Amy Knight, personal finance expert and business commentator at NerdWallet UK, explained that workplace pension schemes could be adjusted to ensure the Triple Lock stays in place.
She said: “One approach the Government could consider is to offer less generous tax relief on workplace pension schemes and ask employers to make up the shortfall.
“If companies were forced to increase their contribution, the amount of tax relief could be reduced, without shrinking the saver’s pension. This makes another big reform, such as an overhaul of the Triple Lock, less likely in the next five years.”