I read with increasing trepidation the financial press predictions as to just what the Chancellor will do in the Autumn budget to recover the huge cost to the country of the Covid-19 pandemic. Predictions are of course a dangerous game to play but the general belief is that somehow we are going to be asked to contribute something at some future point. Of course the most interesting thing to me as an independent financial adviser is the potential attack to our pension system and the tax breaks contained within it – the varying tax reliefs are estimated to cost over £40bn a year with some 90% of this relief going to the top 10%, so perhaps an easier political sell than some other tax changes.

Here are three of the main topics flying around at the moment.

Income Tax relief on pension contributions to be restricted. This might mean restricting relief to just basic rate or 25% and so impacts on those who currently benefit at the higher rate level; and

The annual contribution allowance, currently £40,000, may also be up for consideration. The logic here being that any lowering of this level will also reduce the tax relief the government has to pay on contributions. It has been estimated that the impact of these changes would be to save around 25% of the total pensions cost.

There is then also the threat that your entitlement to a Tax Free Lump Sum from your pension when you retire could be restricted. How this may be achieved is of course not known but perhaps is less politically acceptable as it would effectively be a retrospective change by moving the goalposts.

So whilst these rumours are circulating in the financial and indeed national press, you do have to apply a degree of caution – predictions of changes to pensions tax relief have been circulating every budget since the last financial crisis. Each future budget comes with a whole new set of rumours and the truth is that we just do not know what, if anything, will be announced. Pensions remain critical to the future of this country and any attack on them has to be balanced with the view that switching the population off to these important savings vehicles will ultimately cost any government more in state benefits in the long run.

So it is a wait and see situation we find ourselves in, we know that something has to change but just don’t know what or indeed when. The only thing we do know is the current rules in place, so some people may like to do something whilst they have this certainty. If you would like to discuss this further, please contact either myself or Ian Dowdell.