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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.

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