The Treasury has refused to rule out cuts to tax relief on pension contributions to plug a £2bn hole created by the government’s U-turn on tax rises for the self-employed.
There has been speculation that the chancellor would look at the £25bn net annual cost of pensions tax relief to make up the shortfall, after he abruptly cancelled plans to increase national insurance contributions for the self-employed two weeks after they were announced.
The national insurance rise would have raised £500m a year for the Exchequer, or £2bn by the end of the parliament.
A week before the Budget, a Treasury minister had reassured the industry that significant reform was not on the immediate agenda but in response to a question on whether cuts to pensions tax relief were being considered, the Treasury told the FT “we keep all taxes and reliefs under review”.
In the industry, there has been speculation that radical changes, including the scrapping of pension tax relief for higher earners, are still under consideration following a consultation in 2016.
In a letter dated March 2 to AJ Bell, a pension provider, Jane Ellison, treasury financial secretary, wrote “an extensive consultation was conducted last year, which considered changes to the pensions tax framework”.
“This concluded that now is not the right time to undertake significant reform.
“Given this, the government does not think it is necessary to convene an independent pensions commission at this time.”
Some in the industry think it unlikely the government will announce any big changes in the autumn budget, but further “tinkering” on pensions is highly likely, said Tom McPhail, head of retirement policy at asset management company Hargreaves Lansdown.
“The annual and lifetime [pension contribution] allowances are the obvious targets for cuts and are all back in play for autumn.”