The UK’s Chancellor Philip Hammond is planning to introduce pension tax relief cuts in order to increase spending on the younger generation.

As part of Hammond’s attempts to introduce “intergenerational fairness”, it is understood that the Chancellor may make pensions tax relief reductions in order to fund cutting national insurance contributions (NICs) for workers in their 20s and 30s.

Head of the Prime Minister’s policy unit, George Freeman told The Telegraph: “We need to look at a new model of saving for a generation who will not benefit from the post-war model of national insurance.”

This policy would be similar to Hargreaves Lansdown’s tax-relief system proposed last September. This would involve a government top-up for employee contributions on defined contribution pensions as 100 per cent of the money put in minus the individual’s age.

Former Pensions Minister and Royal London Director of Policy Steve Webb commented in September that tax relief cuts were highly likely. Speaking at the Chartered Institute of Securities & Investments’ annual financial planning conference hesaid: “Hammond’s got to raise all the money he hasn’t raised, plus the economy is slowing, plus the spending pressure. He’s a few months after a disastrous election, so he’s unlikely to raise the headline rates of income tax, national insurance or VAT, so where’s he going to look for money? Tax relief on pensions.”

Also commenting on the plans, former Pensions Minister Ros Altmann said today that while pension tax relief reform could offer flat-rate incentives and remove Lifetime Allowance, now is probably not the time. She added that the cuts “could harbour potentially lethal political damage”.

AJ Bell senior analyst Tom Selby said: “On a practical level, 60% of pension tax relief is received on employer contributions, rather than individual contributions. So while it would be relatively simple to restrict higher rate tax payers from reclaiming additional relief via their tax return at a certain age, changes would need to be introduced to catch employer pension contributions, including salary sacrifice arrangements, so that they can’t be used to circumvent the new rules.

“Final salary pension schemes would also have to be looked at to ensure they are treated on an equal basis to money purchase pensions. While none of this is impossible, it is not simple, would take years to implement and is unlikely to deliver the immediate budget injection the Chancellor is seeking to help younger people.”

In terms of political impact Selby noted: “Politically the Chancellor would be treading on very thin ice. Older voters still hold the key to electoral success and raiding their pensions would risk alienating the very people who delivered Theresa May to Downing Street, albeit as the head of a minority Government.

“This speculation further strengthens the argument for moving pension tax relief policy out of politics. Rather than altering the framework at a whim in order to make short-term political gain, an independent commission should be established to review the system with a long-term time horizon and consider what, if any, changes need to be made.”

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