Higher rate pensions tax relief removal could end private sector DB pensions - Aegon

Plans to remove higher rate tax relief from pension contributions could kill off remaining defined benefit schemes in the private sector and raise major issues for those in the public sector, Aegon pensions director Steven Cameron has said.

Amid speculation that the Chancellor, Rishi Sunak, may be planning to carry this out in his March budget, Cameron argued: “If the government cuts the top ups for higher rate taxpayers, either the members will have to pay more or the employer will have even greater balancing contributions. Neither will be welcomes so this could be yet another prompt to close the few remaining ‘gold plated’ defined benefit pensions in the private sector.”

He added: “There is also the risk that higher rate tax employees would face a ‘benefit in kind’ tax charge on employer contributions. While there are few remaining in the private sector defined benefit schemes remain common in the public sector. Any changes to tax treatment of pensions would need to apply here too to avoid divisive preferential treatment for public sector employees.

“So the government will face explaining significant contribution increases for public sector higher rate tax payers or finding additional funds from public sector employers which ultimately may have to be paid for by general taxpayers. This is one of many complexities that need to be fully thought through ahead of any reform of the tax treatment of pensions.”

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