The surprise change of £10 billion pension tax break raids for higher earners has not halted the speculation about the 2020 budget. Financial experts are warning those who receive a higher top-up of 40 percent tax rate to add whatever they can afford to their pensions to caution them in case of a significant budget shake-up. As you wait to see which way it goes, it’s better off to be safe than sorry. Previously, similar pension overhaul rumors have resulted in a huge rush of money getting into government pots. Generally, there is a significant tax raid risk in the budget.

Defined Benefit Schemes


By the government announcing its plan to do away with arbitrary tax advantages targeting the rich, you don’t know the exact shape this raid might take, so the best thing is to protect yourself from the impacts. It means that you should take advantage of the tax breaks that are there currently as much as you can while they last. While the current tax relief systems may yet survive the threat, its continuation cannot be assumed, so higher earners should consider advance maximizing their pension contributions just in case of any potential changes. Under the carry forward rules, those who have already optimized their present year allowance can use up any unutilized benefits for the previous three years. For primary or high taxpayers, there is an annual allowance cap of £40,000 (tax relief included) of the much a person can contribute to a pension and still enjoy a tax relief each year. The yearly allowance cap must match with the earnings in a given year, and this means that it will be reduced depending on your earnings if it is below the allowance cap. Savers who will want to carry forward their unused pension from their previous three tax years must first use their current year’s allowance fully. There is also a risk that high rate taxpayers may encounter a ‘benefit in kind’ charge on tax on their employer’s contributions. Where employers or staff add pension payments to reduce the national insurance, this might be a casualty in the tax relief shake-up as the government would probably close this loophole.

Private Pension Schemes

Defined benefit schemes are universal in the public sector, with less available in the private sector. To get tax relief on private pensions that you contribute yourself, you must ensure that all your payments made for any given tax year is not in excess of your earnings for that year. For those who would want to catch up with pension contributions because their financial status has improved or maybe they are underfunded, they can comfortably do so. Any tax treatment changes of pensions would be applied here too to avoid preferential or divisive tax charges for employees working in the public sector. The government will have to explain getting any additional funds that public sector employers must give out or any significant contribution increase for public sector taxpayers, which ultimately may lead to payments by all general taxpayers.

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