Pension tax relief – radical reform or daylight robbery?

Pension tax relief - radical reform or daylight robbery?Will changes to pension tax relief in the Budget next month represent radical reform or daylight robbery?

Speculation is rife that the Budget could feature some radical reform to pension tax relief.

Will the Chancellor go as far as daylight robbery when he announces any changes to pension tax relief in the Budget?

Pension provider Royal London has been warning this week that the Budget on 16th March could amount to ‘daylight robbery’ if the Chancellor replaces the current system either with a pension ISA or a low flat-rate of tax relief for all.

They have evaluated three potential options the Chancellor could pick as he reforms pensions in the Budget:

Pension ISA

This was an idea suggested by the Chancellor in his Budget last July.

It would involve the abolition of up-front tax relief on pension contributions.

Doing this means those making pension contributions pay their taxes today rather than when they receive pension income in the future.

Royal London say this would, in effect, be the present government stealing funding from the next generation for the public services that they will need as our society ages.

Flat-rate relief

If the Chancellor decides to introduce a flat-rate of tax relief on pension contributions in his Budget next month, it would introduce a system where everyone gets the same level of tax relief, regardless of how much income tax they pay on earnings.

Royal London suggest a low flat rate, such as 25%, would take billions of pounds out of support for long-term saving.

This is the ‘Daylight Robbery’ option, coming at a time when society needs more long-term saving for retirement, not less.

The report from Royal London calculates that a flat rate of 25% would be worth little more than £2 per week extra for basic rate taxpayers.

It would therefore create little additional wealth for basic rate tax payers but act as a major disincentive to pension saving for higher earners.


The Royal London report sets out some of the Chancellor’s options for continuing with recent practice of making further detailed changes to the limits and structure of tax relief without any fundamental reform to pension taxation.

They argue that this would be the ‘worst of all worlds’ creating yet more uncertainty and complexity and missing a once-in-a-generation chance to simplify the pension system.

Commenting on the three options explored in the report, Royal London director of policy Steve Webb said:

“The March Budget could be the biggest example of Daylight Robbery since the days of Dick Turpin.

“A pension ISA steals billions of pounds in tax revenues from the next generation who will need the money to fund the public services of an ageing society.

“And if the Chancellor opts for a low flat-rate of tax relief, he will be stealing billions of pounds today from the support we give to hard-pressed savers.

“We need a reform which helps savers and offers simplification and stability, such as a generous flat rate of up-front relief combined with the abolition of the lifetime limit on pension saving.

“Anything else would be a huge missed opportunity”.

What do you expect to happen to pension tax relief in the Budget next month? Will it be a case of radical reform or daylight robbery?


Keep reading

Join over 2,500 satisfied subscribers
Get the Informed Choice weekly update email

Straight to your inbox at the end of each week, our weekly update email shares the best of our content from the past seven days, so you don't miss a single thing.

About Martin Bamford

Martin Bamford is a Chartered Financial Planner, Certified Financial Planner (CFP) professional and published personal finance author. He works with elderly clients to provide advice on funding residential care fees, hosts the Informed Choice Podcast and is a keen ultra runner.
This entry was posted in News, Retirement. Bookmark the permalink.