Reports have been emerging that the UK Treasury may be seeking major reform of the pension system in future Budgets as the nation attempts to repay the costs of COVID-19.
The Government has tinkered with the pension system in previous Budgets, but it remains largely unchanged, particularly the important ‘triple lock’ promise.
However, the Daily Telegraph has said that it has seen Treasury plans that could introduce a flat rate of tax relief, lower the lifetime pension allowance and tax employer pension contributions.
According to the paper, one proposal put forward in the Treasury plans would slash the pensions lifetime allowance from £1,073,100 to around £800,000.
The current pensions lifetime allowance affects a limited number of savers but the drop could mean that a greater number of people rise above the allowance and are taxed as a result.
This wouldn’t be the first time that the lifetime allowance has been cut. The last 10 years have seen the threshold fall from £1.8 million to £1 million, where it has only since increased in line with inflation and is now frozen until 2026.
Many leading financial experts have said that further changes to pensions may be on the horizon, but point out that significant change could be politically unpopular and reverse wider efforts by the Government to encourage people to save for later life.
In particular, a flat-rate of pension tax relief, as proposed in the leaked Treasury document, could result in tax rises for public sector workers in defined benefit schemes, among them NHS workers who worked tirelessly throughout the pandemic.
It is not yet clear if or when the proposals seen by the Telegraph could be introduced, but they may indicate measures the Government could take in future Budgets.