By ADRIAN LOWCOCK 03/12/2009
There have been numerous rumours and comments in the press suggesting that the Chancellor may further restrict the tax benefits of pensions in his Pre-Budget Report on 9th December. Some of these rumours will almost certainly have originated as leaks from the Government, to test reaction and manage down expectations. Whilst these views may have elements of truth in them, we would stress that until the report on Wednesday nothing is for certain.
What are the rumours?
Higher tax relief
It is possible the Chancellor may limit tax relief on pension contributions for higher rate tax payers. This would be a popular move for many voters as it wouldn’t affect them. If this does go through, there is likely to be no warning and the restrictions would apply with immediate effect.
Tax free cash
The ability to take a portion of your pensions as tax-free cash is a valuable benefit. By restricting the amount of tax free cash that can be taken, the Chancellor could again target a minority of pension holders who are deemed to be very wealthy. Again it is likely that if is introduced then the rules would be put in place immediately to stop those affected from taking tax free cash now.
Regular contributions
In the last budget investors who make regular contributions into their pensions were given an exemption from the new rules and limits. Whilst we cannot be sure, regular payments could again be given preferential treatment.
Our view
It could be dangerous to pre-empt changes to tax rules on this basis as the consequences of getting it wrong could be as bad or worse than waiting to see what happens. There is no doubt that higher rate tax payers will be an attractive target for the chancellor. We recommend investors act now to make use of all the tax allowances available to them.
We will be posting our views on the Pre-Budget Report next week. In the meantime, please call one of our Advisers on 020 7189 9999 if you would like advice on pension or tax planning.