Print Share

OBR analysis puts pressure on Hammond to reform pension tax relief


Philip Hammond will have his work cut out for him in the upcoming budget as the Office for Public Responsibility’s new analysis shows that it has drastically over-estimated UK growth. 

With the pressure mounting, Jon Greer, head of retirement policy at Old Mutual Wealth, looks at how the Chancellor could fill his purse using pension tax relief, or curbing national insurance contributions and the impacts of such moves.  

Jon GreerJon comments:

The prospect of a tax-raid on pensions was floated under George Osborne. But earlier this summer David Gauke  ruled out ‘fundamental’ reforms to the system. This offered some re-assurance to savers, but ultimate authority for pension taxation sits with the Treasury rather than the Department for Work and Pensions.

According to the latest data, the cost of pension tax relief now totals close to £54bn annually. This includes both income tax relief and employer national insurance exemptions. That is a huge investment in our future prosperity, and we hope the Chancellor will recognise the long-term value it delivers in helping workers achieve a saving pot that will deliver a prosperous retirement.

Nonetheless, with limited wiggle-room in the upcoming Budget there are still lingering concerns that the Chancellor may chip away at the tax break. This seems unlikely to take the form of an overhaul of income tax relief on pension contributions, which would be a major risk.

However, the government could further reduce the annual allowance on contributions. It has already tumbled from around £250,000 as a recently as 2010, but curbing it further would allow government to restrict contributions from higher earners. Savers affected by such a measure would be able to use the £40,000 annual allowance for this tax year, and any unused allowance from the past three years, known as ‘carry-forward’.

A more radical option would be to curb the employer national insurance exemption. This costs around £15bn a year on latest estimates, but will continue to go up as minimum contribution rates under auto-enrolment increase in 2018 and 2019. Cutting this relief would heap additional cost on corporates, by stripping away the relief they get on NI of up to 13.8% when paid into a staff pension. But it would reduce the cost of pension tax relief without hitting employees directly.

Before implementing such a radical option, Hammond needs to think about the impact on businesses in the UK. The Conservatives have already promised that the UK is open for business, a promise of particular importance as Brexit negotiations tick along.  

For more information contact

Kathleen GallagherOld Mutual Wealth023 8072 629307990

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.1 billion in customer investments (as at 30 September 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• The private client advisers business is now Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.