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Pensions: Bring back the 10p rebate

SAVE £3 BILLION BY SCRAPPING HIGHER RATE PENSIONS TAX RELIEF WHILE BRINGING BACK THE 10p REBATE

In the lead-up to the 2012 Budget, leading pensions expert Michael Johnson examines the £30 billion spent on incentivising retirement savings, in Pensions: bring back the 10 p rebate and goodbye higher rate relief.

 He has three aims:

  • To reduce the total cost to the Treasury
  • To reduce pensioner poverty
  • To encourage a savings culture

 His proposals for reform include:

  • Abolishing higher rate tax relief
  • Using part of the £7 billion annual saving to reinstate the 10p tax rebate on pension assets’ dividends and interest income (costing some £4 billion per annum). Such income should then be truly tax-free for pension funds.
  • Combining the annual contribution limits for tax relief on ISAs and pensions saving, at no more than £40,000, with the full limit available for saving within an ISA. This limit could be used as a key cost control lever, with adjustments to it (driven by affordability) becoming a regular feature in the Budget;
  • Replacing the 25% tax-free concession on lump sum withdrawals at retirement with a 5% “top-up” of the pension pot, paid prior to annuitisation, which would be of much more lasting benefit, to most people (this would be cost neutral);
  • Catalysing a controlled trickle-down of wealth through the generations, within a tax-sheltered pensions framework;
  • Providing an additional incentive to employers to encourage employees to boost their pension contributions.

Media Impact

Michael Johnson - Friday 9th March 2012

Michael trained with JP Morgan in New York and, after 21 years in investment banking, joined Towers Watson, the actuarial consultants. Subsequently he was responsible for the running of David Cameron’s Economic Competitiveness Policy Group.