What will ‘Tax Day’ have in store for pensions?

Rumours abound that tomorrow will see the equalisation of pensions tax relief between basic and higher or additional rate taxpayers.

• Pensions are already the last thing on people’s minds, says ii - we need to make them more attractive for all, rather than less attractive to some.

Tomorrow, on a national day of reflection as the nation marks one year on from the UK lockdown, it is also expected to mark ‘Tax Day’, as chancellor Rishi Sunak seeks to plug the gaping deficit.

Rumours abound that tomorrow will see the equalisation of pensions tax relief between basic and higher or additional rate taxpayers.

Rebecca O’Connor, Head of Pension and Savings, interactive investor, says: “Equalising pensions tax relief between basic and higher or additional rate taxpayers is likely to disincentivise pension investing for some higher and additional rate taxpayers who are attracted to pensions by the tax relief on offer.

“Reducing higher-rate taxpayers relief would resolve one type of inequality, but would create an even deeper generational divide between older workers who have benefited from higher rate tax relief on their pension pots - often to the tune of hundreds of thousands of pounds over their working lives - and the younger workers who are higher-rate taxpayers and will not have the same advantage. Their eventual pots could be much lower as a result of lower relief.

“Incentivising investing for retirement is really important in a world where there is huge pressure to spend our incomes today. Pensions are already the last thing on people’s minds. We need to make them more attractive for all, rather than less attractive to some.”