On 2 June 2021, the Government published its response to the Treasury Committee’s ‘Tax after Coronavirus’ report. This discussed potential changes to the tax system across a wide range of areas to support the economy in the aftermath of the COVID-19 pandemic. Specifically, this included recommendations that ‘the Government should urgently reform the entire approach to pensions tax relief’.
In its response, the Government noted that changes to pensions tax relief in recent years have aimed to strike a balance between allowing the vast majority of savers to make significant tax-free pension savings and targeting incentives to save on those who most need Government support to save for retirement. It went on to note that altering this balance could have profound and far-reaching impacts and so, while all tax reliefs are kept under review, more radical changes to pensions tax relief would require careful consideration.
In recent years, the Government feels it has made a number of changes to ensure pensions tax relief continues to be as fairly distributed as possible. For example:
In summary therefore, for now the Government has dismissed the need for immediate pensions tax reform, citing instead the near and present priority to focus on supporting businesses and workers to recover from the COVID-19 pandemic.
However, as an ongoing topic of scrutiny and debate it is under constant review, and of course the outcome of the Call for Evidence review will be eagerly awaited to help ensure fairness in the way tax relief is granted for lower earners.