BUDGET: Further pension freedoms considered

The Chancellor has launched a new consultation on pensions
The Chancellor has launched a new consultation on pensions
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Proposals to make pensions more like Isas have been set out by the Government, paving the way for further radical reforms to retirement savings.

A consultation has been launched on further possible reforms, following a raft of new freedoms on access to pension pots in previous Budgets, to consider whether there is a case for reforming pensions tax relief.

The principle of the current system is that contributions to pensions are exempt from tax when they are made, but taxed when they are paid out to the pension saver.

Generally, retirees are entitled to take 25 per cent of their pension tax free and the rest is subject to tax.

But it has been suggested that the system could be switched around so that pension pots become more closely aligned with Isas, which are built up from income that has already been taxed.

Under the proposals, pension contributions could be taxed up front and then topped up by the Government and the money would then be exempt from tax when the saver wants to take it out.

The Chancellor said: “I am open to further radical change. Pensions could be taxed like Isas.

“You pay in from taxed income - and it’s tax-free when you take it out. And in between it receives a top-up from the Government.

“This idea, and others like it, need careful and public consideration before we take any steps.”