Wells said she may also act to remove or cap the amount of tax free cash, and possibly subject pension cash to inheritance tax (IHT) and/or removing the pre-75 tax free status.
Wells added none of these suggestions met all the PLSA’s five principles of pensions tax, which were set out in 2021.
These included: promotion of adequacy, encouraging the right behaviour, being fair, being simple to adopt and administer, and enduring and sustainable,
While none met all five the introduction of a flat rate level of taxation relief and the removal of NI relief were considered to be the most simple and sustainable.
Plucking the pensions goose
Steve Webb, a partner at LCP and former pensions minister during the 2010 to 2015 coalition Conservative/Liberal Democrat administration under Lord Cameron
likened pension taxation reform to: “Plucking the goose with the minimum amount of hissing.”
“They [Labour] want to raise serious amounts of money and they will have heard the clock ticking to the next election, so they need something that will raise money as soon as possible.”
He said the need to plug the public funding gap was urgent and that had implications for the type of reform we will see in the Budget.
“If you do bad stuff, do it early so the electorate will forget.”
Webb urged the government to learn lessons from the abolition of the Lifetime Allowance (LTA).
“Six months after it came in, HMRC are still finalising the rules. If it is complicated to abolish something it’;s complicated to bring something in.
“If they were to abolish or cap tax free cash at £100,000. That would be difficult for example some would be using it to pay a mortgage.
“But a government that wants money now to make a difference in the NHS so really it’s preferable they would have wanted the money last year.”
Another likelihood was a staggered, or tapered removal of employer’s NI relief. “They may put a penny on employer NI in this budget and then nudge it up next year.”
Sam Downes is a freelance financial journalist
