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Pension Tax Relief Overhaul Risks Backlash and Unraveling for Chancellor
8 Sep
Summary
- Pension tax relief changes could trigger a repeat of the 2012 'Omnishambles' Budget
- Reforms may raise less revenue than expected and harm lower-paid workers
- Public sector workers and those using salary sacrifice schemes could be hit hard
As the Chancellor looks to fill a hole in the country's finances, experts are warning that making major changes to pension tax relief could trigger a repeat of the infamous 2012 'Omnishambles' Budget. The proposed reforms, which include slashing higher-rate tax relief and capping tax-free cash, are expected to face significant practical difficulties and public backlash.
According to a new report, the changes could disproportionately impact public sector workers, including those on modest incomes but with long service records, as well as lower-paid workers using salary sacrifice schemes. The report suggests the reforms may raise far less revenue than expected, as the government would need to implement extensive transitional protections and overhaul the entire pension system.
The political fallout could force the Chancellor to swiftly row back on the changes, much like former Chancellor George Osborne did with the 'pasty tax' and static holiday caravan VAT hikes in 2012. Experts caution that the Chancellor should steer clear of such major pension tax relief reforms to avoid a similar fate, as they could undermine pension saving and put additional burdens on employers already facing other tax increases.
