Money
Is it time? What flat-rate pensions tax relief would look like
As the 30 October Budget approaches, the usual speculation about reforms to the pensions tax system is rife.
Chancellor Rachel Reeves’ £22bn ‘black hole’ speech and prime minister Kier Starmer’s ‘it’s going to be painful’ warning suggest the government is exploring any opportunity to raise tax revenue, particularly from those with the ‘broadest shoulders’.
In the pensions arena, Reeves might be considering including them within the scope of inheritance tax, tightening limits such as the 25% tax-free lump sum or reintroducing the lifetime allowance. Some would generate more short-term benefit to the Exchequer than others.
But what of the most radical change – moving from marginal to flat-rate tax relief?
Currently, individuals receive tax relief at their highest marginal rate on personal contributions, with pension funds growing virtually tax free and proceeds after the pension commencement lump sum taxed as income when taken.
Employer contributions are generally treated as business expenses and salary sacrifice is popular, due to favourable National Insurance (NI) treatment.
Personal contributions
Under a flat-rate system, the government would set the rate of tax relief, which could change over time.
Assuming a 30% flat rate, basic-rate and non-taxpayers would benefit – but at the expense of higher- and additional-rate taxpayers. It’s also likely flat-rate relief would necessitate a unilateral move to relief at source.
Employer contributions
Flat-rate relief on personal contributions would almost inevitably change the tax treatment of employer contributions.
Without this, higher and additional rate taxpayers could keep current tax relief by asking employers to pay on their behalf through salary sacrifice. Such taxpayers might face a ‘benefit in kind’ tax on employer contributions at a rate equal to their marginal rate minus the flat rate.
If flat-rate relief were 30%, a higher-rate taxpayer might be charged 10% of employer contributions, creating a double whammy on top of less relief on personal contributions.
Making employer pension contributions subject to employer NI would generate significant revenue. However, it would place an additional burden on businesses and act as a disincentive for employers to go beyond the auto-enrolment minimum.
Defined benefit schemes
One of the most complex areas is how ‘open’ defined benefit (DB) schemes, now almost entirely in the public sector, would be affected.
While personal contributions translate well to DB, the treatment of employer contributions is problematic. They can be very generous, vary over time and aren’t ‘earmarked’ for individuals.
A ‘deemed’ employer contribution would need to be calculated based on each scheme’s benefit structure, possibly varying by age to reflect the greater value of each year’s accrual at older ages.
How might the government feel about landing higher-paid professionals, such as in the NHS, with another pensions-related tax bill? But leaving DB schemes unchanged would benefit their higher earning members and would be hugely divisive.
The critical ‘rate’
Many argue the flat rate should be at least 30% to avoid ‘double taxation’ for someone paying higher rate in retirement.
With 25% tax-free and a 40% tax on the balance in payment, the ‘average’ tax rate in payment is 30%. I agree with this as a minimum rate to ensure a positive perception of pension tax efficiency.
However, the calculations oversimplify the issue, as higher-rate tax applies only to total income, including from state and private pensions, above (currently) £50,270.
Individuals would need to look ahead to work out if their pension fund, after tax-free cash, combined with the state pension, would push their income above this threshold.
Advice here would be essential, including considering the benefit of employer contributions.
Individual behavioural response
One big unknown is how individuals will react to any change. Hopefully basic-rate taxpayers would continue to contribute at current ‘net’ levels, increasing gross contributions and boosting retirement outcomes.
However, higher-rate taxpayers might find pensions less attractive, especially if taxed on employer contributions, leading to potential opt-outs. The government would surely want to avoid mass opt-outs, as pension savings benefit individuals, reduce future state reliance and support UK economic growth.
Next steps
While current national finances are stretched, pensions must be viewed as longer term than the timetable for addressing the UK’s financial ‘black hole’, or indeed any government’s five-year term.
Any system of pensions tax relief needs to incentivise appropriate retirement savings, across all earnings bands. Failure to achieve this will fundamentally undermine auto-enrolment and could mean more people falling back on the state in retirement.
Advisers may wish to discuss potential changes with higher- and additional-rate clients. For some, the ‘no regrets’ action might be to pay extra into their pension before 30 October.
Steven Cameron is pensions director at Aegon UK
CryptoCurrency
Coinbase’s cbBTC surges to third-largest wrapped BTC token in just one week
According to data from CryptoQuant, cbBTC circulation supply has outpaced long-established players seven days after launch.
CryptoCurrency
Bitcoin options markets reduce risk hedges — Are new range highs in sight?
Bitcoin options market positioning shifted as BTC price shot through the $60,000 to $63,000 level.
CryptoCurrency
Ethereum is a 'contrarian bet' into 2025, says Bitwise exec
Ether price could be on track for another correction into a triple-bottom, marking the beginning of a big rally into 2025.
CryptoCurrency
Blockdaemon mulls 2026 IPO: Report
CryptoCurrency
SEC asks court for four months to produce documents for Coinbase
The financial regulator requested an extension until February 2025 to review “at least 133,582 unique documents” as part of discovery motions with Coinbase.
CryptoCurrency
‘Silly’ to shade Ethereum, the ‘Microsoft of blockchains’ — Bitwise exec
Ethereum is still home to the most active crypto developers and is the most attractive chain to build applications on top of for big companies, argues Bitwise’s Matt Hougan.
-
Sport7 hours ago
Joshua vs Dubois: Chris Eubank Jr says ‘AJ’ could beat Tyson Fury and any other heavyweight in the world
-
News1 day ago
You’re a Hypocrite, And So Am I
-
Technology6 hours ago
iPhone 15 Pro Max Camera Review: Depth and Reach
-
CryptoCurrency7 hours ago
Bitcoin miners steamrolled after electricity thefts, exchange ‘closure’ scam: Asia Express
-
CryptoCurrency7 hours ago
SEC asks court for four months to produce documents for Coinbase
-
News8 hours ago
Israel strikes Lebanese targets as Hizbollah chief warns of ‘red lines’ crossed
-
Sport7 hours ago
UFC Edmonton fight card revealed, including Brandon Moreno vs. Amir Albazi headliner
-
CryptoCurrency6 hours ago
Ethereum is a 'contrarian bet' into 2025, says Bitwise exec
-
Science & Environment10 hours ago
How one theory ties together everything we know about the universe
-
CryptoCurrency7 hours ago
SEC settles with Rari Capital over DeFi pools, unregistered broker activity
-
News5 hours ago
Brian Tyree Henry on voicing young Megatron, his love for villain roles
-
CryptoCurrency7 hours ago
2 auditors miss $27M Penpie flaw, Pythia’s ‘claim rewards’ bug: Crypto-Sec
-
CryptoCurrency7 hours ago
Arthur Hayes’ ‘sub $50K’ Bitcoin call, Mt. Gox CEO’s new exchange, and more: Hodler’s Digest, Sept. 1 – 7
-
CryptoCurrency7 hours ago
Treason in Taiwan paid in Tether, East’s crypto exchange resurgence: Asia Express
-
CryptoCurrency7 hours ago
Leaked Chainalysis video suggests Monero transactions may be traceable
-
CryptoCurrency7 hours ago
Journeys: Robby Yung on Animoca’s Web3 investments, TON and the Mocaverse
-
CryptoCurrency7 hours ago
Louisiana takes first crypto payment over Bitcoin Lightning
-
CryptoCurrency7 hours ago
Are there ‘too many’ blockchains for gaming? Sui’s randomness feature: Web3 Gamer
-
CryptoCurrency7 hours ago
Crypto whales like Humpy are gaming DAO votes — but there are solutions
-
CryptoCurrency7 hours ago
Help! My parents are addicted to Pi Network crypto tapper
-
CryptoCurrency7 hours ago
Five crypto market predictions that haven’t come true — yet
-
CryptoCurrency7 hours ago
$12.1M fraud suspect with ‘new face’ arrested, crypto scam boiler rooms busted: Asia Express
-
CryptoCurrency7 hours ago
‘Everything feels like it’s going to shit’: Peter McCormack reveals new podcast
-
CryptoCurrency7 hours ago
SEC sues ‘fake’ crypto exchanges in first action on pig butchering scams
-
CryptoCurrency7 hours ago
Fed rate cut may be politically motivated, will increase inflation: Arthur Hayes
-
CryptoCurrency7 hours ago
Decentraland X account hacked, phishing scam targets MANA airdrop
-
CryptoCurrency7 hours ago
Binance CEO says task force is working ‘across the clock’ to free exec in Nigeria
-
CryptoCurrency7 hours ago
Bitcoin price hits $62.6K as Fed 'crisis' move sparks US stocks warning
-
CryptoCurrency7 hours ago
CZ and Binance face new lawsuit, RFK Jr suspends campaign, and more: Hodler’s Digest Aug. 18 – 24
-
CryptoCurrency7 hours ago
Cardano founder to meet Argentina president Javier Milei
-
CryptoCurrency7 hours ago
CertiK Ventures discloses $45M investment plan to boost Web3
-
CryptoCurrency7 hours ago
Memecoins not the ‘right move’ for celebs, but DApps might be — Skale Labs CMO
-
CryptoCurrency7 hours ago
Dorsey’s ‘marketplace of algorithms’ could fix social media… so why hasn’t it?
-
CryptoCurrency7 hours ago
Telegram bot Banana Gun’s users drained of over $1.9M
-
CryptoCurrency7 hours ago
Low users, sex predators kill Korean metaverses, 3AC sues Terra: Asia Express
-
CryptoCurrency7 hours ago
Blockdaemon mulls 2026 IPO: Report
-
News5 hours ago
“Beast Games” contestants sue MrBeast’s production company over “chronic mistreatment”
-
Technology3 days ago
YouTube restricts teenager access to fitness videos
-
Science & Environment10 hours ago
‘Running of the bulls’ festival crowds move like charged particles
-
Politics21 hours ago
What is the House of Lords, how does it work and how is it changing?
-
MMA7 hours ago
UFC’s Cory Sandhagen says Deiveson Figueiredo turned down fight offer
-
MMA7 hours ago
Diego Lopes declines Movsar Evloev’s request to step in at UFC 307
-
Football6 hours ago
Niamh Charles: Chelsea defender has successful shoulder surgery
-
Football6 hours ago
Slot's midfield tweak key to Liverpool victory in Milan
-
Fashion Models6 hours ago
Miranda Kerr nude
-
Politics6 hours ago
Labour MP urges UK government to nationalise Grangemouth refinery
-
Science & Environment10 hours ago
Rethinking space and time could let us do away with dark matter
-
Entertainment5 hours ago
“Jimmy Carter 100” concert celebrates former president’s 100th birthday
-
Science & Environment18 hours ago
Sunlight-trapping device can generate temperatures over 1000°C
-
News5 hours ago
Joe Posnanski revisits iconic football moments in new book, “Why We Love Football”
-
Science & Environment20 hours ago
Quantum to cosmos: Why scale is vital to our understanding of reality
-
Technology3 days ago
Trump says Musk could head ‘government efficiency’ force
-
Science & Environment21 hours ago
Quantum time travel: The experiment to ‘send a particle into the past’
-
Science & Environment18 hours ago
Doughnut-shaped swirls of laser light can be used to transmit images
-
Science & Environment16 hours ago
Black holes scramble information – but may not be the best at it
-
Science & Environment16 hours ago
The galactic anomalies hinting dark matter is weirder than we thought
-
Science & Environment7 hours ago
We may have spotted a parallel universe going backwards in time
-
CryptoCurrency7 hours ago
Telegram CEO cannot leave France, OpenSea receives Wells notice, and more: Hodler’s Digest, Aug. 25 – 31
-
CryptoCurrency7 hours ago
Solana unveils new Seeker device, says it’s not just a ‘memecoin phone’
-
CryptoCurrency7 hours ago
Crypto scammers orchestrate massive hack on X but barely made $8K
-
CryptoCurrency7 hours ago
Bitcoiners are ‘all in’ on Trump since Bitcoin ’24, but it’s getting risky
-
CryptoCurrency7 hours ago
Real-world asset tokenization is the crypto killer app — Polygon exec
-
Science & Environment10 hours ago
Jupiter’s stormy surface replicated in lab
-
Science & Environment10 hours ago
Future of fusion: How the UK’s JET reactor paved the way for ITER
-
Politics10 hours ago
Owen Paterson loses ECHR appeal against report that preceded downfall | Owen Paterson
-
CryptoCurrency7 hours ago
DuckDuckGo ranks Etherscan phishing websites in top results
-
CryptoCurrency7 hours ago
Bitcoin bull rally far from over, MetaMask partners with Mastercard, and more: Hodler’s Digest Aug 11 – 17
-
CryptoCurrency7 hours ago
VonMises bought 60 CryptoPunks in a month before the price spiked: NFT Collector
-
CryptoCurrency7 hours ago
Vitalik tells Ethereum L2s ‘Stage 1 or GTFO’ — Who makes the cut?
-
CryptoCurrency7 hours ago
Ethereum falls to new 42-month low vs. Bitcoin — Bottom or more pain ahead?
-
Business7 hours ago
Thames Water seeks extension on debt terms to avoid renationalisation
-
Business6 hours ago
How Labour donor’s largesse tarnished government’s squeaky clean image
-
Business5 hours ago
UK hospitals with potentially dangerous concrete to be redeveloped
-
Business5 hours ago
Axel Springer top team close to making eight times their money in KKR deal
-
News5 hours ago
Sean “Diddy” Combs denied bail again in federal sex trafficking case
-
News5 hours ago
Sean “Diddy” Combs denied bail again in federal sex trafficking case in New York
-
News5 hours ago
Brian Tyree Henry on his love for playing villains ahead of “Transformers One” release
-
News5 hours ago
Brian Tyree Henry on voicing young Megatron, his love for villain roles
-
News9 hours ago
Police chief says Daniel Greenwood 'used rank to pursue junior officer'
-
News9 hours ago
Church same-sex split affecting bishop appointments
-
Technology2 days ago
Is carbon capture an efficient way to tackle CO2?
-
Politics2 days ago
Trump says he will meet with Indian Prime Minister Narendra Modi next week
-
Science & Environment10 hours ago
Physicists have worked out how to melt any material
-
Politics22 hours ago
Keir Starmer facing flashpoints with the trade unions
-
CryptoCurrency2 days ago
Bitcoin reclaims $60K and ‘this time is different,’ says analyst
-
Health & fitness2 days ago
Why you should take a cheat day from your diet, and how many calories to eat
-
Technology8 hours ago
Fivetran targets data security by adding Hybrid Deployment
-
News2 days ago
Why is XRP price up today?
-
Science & Environment1 day ago
Elon Musk’s SpaceX contracted to destroy retired space station
-
Science & Environment2 days ago
Our reality seems to be compatible with a quantum multiverse
-
News7 hours ago
Freed Between the Lines: Banned Books Week
-
Technology3 days ago
Musician charged with using bots to boost streaming revenue
-
Technology2 days ago
NYC using drones to warn residents of floods
-
Sport7 hours ago
UFC’s Dan Ige feels confident after Diego Lopes dominates Brian Ortega
-
Business2 days ago
Music mogul Sean Combs charged with racketeering and sex trafficking
-
MMA6 hours ago
Conor McGregor denies allegation he sexually assaulted woman at NBA Finals
-
News2 days ago
Story Behind Ryan Murphy’s FX Show About Aaron Hernandez
-
Science & Environment10 hours ago
The physicist searching for quantum gravity in gravitational rainbows
-
Technology1 day ago
Tech Life: The tech that refuses to die
-
Football6 hours ago
Football Daily
You must be logged in to post a comment Login