Govt rejects MPs’ call for pension tax relief impact review within 12 months

The government has said that it disagrees with the Public Accounts Committee’s (PAC’s) recommendation to conduct a review into the impact of pension tax relief in the next 12 months.

In July 2020, the PAC cited concerns that HMRC did not understand the impact of the tax relief and that some groups were not benefiting from it when they should be.

The government cited several consultations it has conducted over the past few years into pension tax relief, including its July 2020 consultations into administration and public service scheme changes following the McCloud judgment.

Additionally, it stated that its “wide-ranging” 2015 consultation on pension tax relief indicated that there was “no clear consensus for reform at that time".

“The government will continue to engage with stakeholders to understand the regime’s impacts and gather evidence through consultations such as those listed above but does not think it is the right time now for a formal evaluation,” it added.

However, the government did agree to the MP’s other suggestions relating to pension tax relief, including that HMRC should publish data showing who is benefiting, split into demographics such as gender, age, and what type of scheme they are saving into.

It is targeting to publish this data in December 2021.

Commenting on the announcement, AJ Bell senior analyst, Tom Selby, said: “Given the government has postponed this year’s planned Budget due to Covid-19, it is no surprise there is little appetite for another fundamental review of pension tax relief either.

“However, given the number of times the Treasury has floated radical pension tax reform – including potentially introducing a flat-rate of tax relief – and comments from the previous Chancellor about the ‘eye-watering’ costs, it would be naïve to think this draws a line under the issue.

“As sure as night follows day, I expect the issue of pension tax relief reform to resurface once the government is in a position to assess the nation’s parlous financial situation.”

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