The Financial Times reported late on Friday that there would not be any changes to the current system of pensions tax relief at all in the budget.
Quoting “an ally” of the chancellor, the FT said Osborne had always been cautious about doing anything that might damage saving. “He is not going to tear up the system of pension tax relief. There won’t be any changes to tax relief at all in the budget,” it quoted the ally as saying.
“The pensions consultation has been open-ended, to look at how the system is working. He’s listened to what people have said and concluded that now isn’t the right time, with uncertainty in the global economy and reforms such as auto-enrolment still bedding in, to turn things on their head," the ally also told the FT.
The chancellor had been expected to use his budget on March 16 to unveil his planned changes to reform the system, but had been under mounting pressure from members of his own party concerned about the financial impact on their constituents.
The BBC, quoting a Treasury source on Saturday, said Osborne had concluded that now was "not the right time" to make changes to pension tax relief. This could also have been a reference to fears that many Conservative MPs who favour Brexit would react unfavourably to big changes on tax relief for pension contributions and therefore add to his political difficulties.
Two options considered
Under the current regime, pension contributions and investment returns are tax-exempt and only income drawdown is taxed at the individual rate - 20%, 40% or 45%.
The two most likely options the chancellor was thought to have been considering were either a shift to a flat rate scheme – seen as beneficial to low earners but as a tax hike for those earning more than £150,000 ($211,450, €194,120) - or a ‘pension Isa’, whereby pension contributions are taxed and both interest and any future income streams are tax-free.
The pensions industry and even the government’s own pensions minister, Baroness Ros Altmann, had spoken out against planned reforms in recent weeks.
According to the FT, Altmann said: “The freedom and choice reforms have put us in a place where people’s pensions can work well for them. However, tax is a natural brake on them spending their pension fund too soon.”
She added: “It’s clear the current system offers very good incentives to higher earners but is also clear that those who are not higher earners may need more incentives. We may decide that the current system is best. It has got some merits.”