Pension tax relief could be cut for older workers to fund tax cuts for the young, as part of the chancellor’s plan to win over the younger generation, according to reports this morning.
According to The Daily Telegraph, No 10 is considering cutting National Insurance Contributions for workers in their 20s and 30s. This would be funded by reducing pensions tax relief for older earners, it said.
Such a policy would closely resemble an age-based pension tax relief system first talked about with New Model Adviser® by Hargreaves Lansdown last September.
Under Hargreaves' model tax relief, or more accurately a government top-up, for employee contributions on defined contributions pensions would be calculated as 100% of the money put in minus the individual’s age.
For a 26 year old, for every £10 they put into a pension, they would get £7.40 from the government.
According to the Telegraph’s report this morning, the chancellor will use his 22 November Budget to ‘restack the deck for the next generation'.
George Freeman, the head of the Prime Minister’s policy unit, told the paper: ‘We need to look at a new model of saving for a generation who will not benefit from the post-war model of national insurance.’
This will be Hammond's second major Budget set piece and second Budget in a year. He will be hoping any changes to NICs will also fare better than his attempt in the Spring Budget to increase class 4 contributions, which ran against a manifesto pledge not to raise NICs at all.
Changes to the pension tax relief system in the Budget were tipped by former pensions minister and Royal London director of policy, Steve Webb, who claimed in September that cuts were an almost certainty.
Speaking at the Chartered Institute of Securities & Investment’s annual financial planning conference Webb said: ‘ Hammond’s got to raise all the money he hasn’t raised, plus the economy is slowing, plus the spending pressure.
'He’s a few months after a disastrous election, so he’s unlikely to raise the headline rates of income tax, national insurance or VAT, so where’s he going to look for money? Tax relief on pensions.'
However, reports suggest a cut to older worker’s pension tax relief is just one option in a more general ambition to link tax to age and help out younger workers.
Last year Legal & General's chief executive Nigel Wilson said the pension tax relief system was unfair on the young and unsustainable.
He said: 'Providing such generous relief to the older generation is simply intergenerationally unfair. Especially as that generation will be a huge drain on NHS resources.'