It was with a little fear, back in July, that I read the Public Accounts Committee’s proposal that HMRC should, within 12 months, evaluate the impact of pensions tax relief.
The Public Accounts Committee was concerned that HMRC did not fully understand the impact of some of the UK’s largest tax reliefs, which include pension tax relief, and called for a formal review.
Quite rightly, the Government disagreed with this recommendation and pointed to several recent consultations on pensions tax over the last few years. I don’t think I could take another review into pensions tax relief without a completely different stance on what they are seeking.
The multiple consultations, including the responses to the 2015 wide-ranging consultation, were referenced, noting that this indicated there was no clear consensus for reform at that time. So at Budget 2016 the then Government announced it would not make fundamental reform to pensions tax reliefs at that stage. Although it appeared at the time they were leaving the door open for future reform.
Pensions tax relief is always something that is looked upon as easy money for the Government to save because it is deemed such a large amount, £38bn, and that the perception is that this mostly goes to higher or additional rate taxpayers.
However, this isn’t necessarily the case with a significant amount of tax relief being given to employers, including those funding very costly defined benefit schemes, often hailed as the gold standard of pensions and becoming harder for members to transfer out of.
This wasn’t the only recommendation made about pensions tax relief by the Public Accounts Committee. It also recommended that HMRC should publish data showing who is benefiting from pensions tax relief and that they should split this data by income; groups with protected characteristics such as gender, age, and ethnicity; people working in the public and private sectors; and people in defined contribution and defined benefit schemes.
This kind of data will be invaluable for determining if the right people are benefitting from the tax relief and if there is a need to target education in specific groups. The Government did back this recommendation so we can expect to get this level of data in the future.
We can take some comfort from these comments by the Government that we are not going to see any major changes in the coming year or another full-blown consultation into tax relief. However, changes are not something that we can rule out entirely due to the debts the Government will need to repay in the future and the large cost of tax relief.
Claire Trott is director and head of pensions strategy at Technical Connection, part of St James’s Place Group, and chair of the Association of Member-Directed Pension Schemes (AMPS) - the SIPP and SSAS providers body.