Govt responds to Treasury Committee call for pensions tax relief reform

Changes to pensions tax relief could have “profound and far-reaching” implications and would require “careful consideration”, the government has said.

In response to the Treasury Committee’s Tax after coronavirus report, which called for urgent reform to the entire approach to pensions tax relief, the government stated that its immediate focus was on supporting businesses and workers in Covid-19 recovery.

Financial Secretary to the Treasury, Jesse Norman, stated that the 2015 consultation on pensions tax indicated “no clear consensus” for reform.

He also pointed to changes to the pensions tax relief in recent years, which he said aimed to strike a balance between allowing the “vast majority” of savers to make tax-free pension savings and targeting incentives to save on those who most need government support in saving for retirement.

“Altering this balance could have profound and far-reaching impacts, and so while all tax reliefs are kept under review, more radical changes to pensions tax relief would require careful consideration,” Norman noted.

Norman also highlighted the lifetime allowance freeze in the most recent Budget, which he described as a “progressive measure” that “only affects those with the largest pensions”.

“Furthermore, at Budget 2020 the government increased the two tapered annual allowance thresholds to ensure those with earnings below £200,000, including many working in the health service, would not have their allowance reduced,” he continued.

“Finally, the government is analysing the responses to last year’s call for evidence on pensions tax relief administration in line with its manifesto commitment to review comprehensively the differing outcomes for low earners between the two main methods of providing pensions tax relief.”

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