Government considers cutting pension tax relief for high earners in March Budget

Government considers cutting pension tax relief for high earners in March Budget

The Government is planning a shake-up of pension tax relief to aid spending, but experts have warned it could hit savers

Stephen Little
Mon, 02/10/2020 – 11:08


Chancellor Sajid Javid is set to slash the tax relief on pension contributions for higher earners in this year’s Budget, the Financial Times reports.

Treasury insiders have told the FT that Javid is weighing up reforms that would hit higher earners but ease pressure on strained public finances.

The paper says that Javid is considering cutting the rate of pension tax relief for higher earners from 40% to 20%.

Currently, people saving into their pension receive tax relief at the same rate as their income tax rate.

Javid’s allies told the FT that the Chancellor was committed to making the tax system “fair and efficient”.

The Treasury told the FT: “We don’t comment on speculation. All taxes are held under review and any changes are announced by the Chancellor at the Budget.”

Other reforms under consideration include capital gains tax, inheritance tax and entrepreneur’s relief.

Previous plans by the Government to reduce the rate of pension tax relief were scrapped in 2016.

What is pension tax relief?

With pension tax relief, the money that would have gone to the government in tax instead goes towards your pension.

The amount of pension tax relief workers receive depends on their income tax rate.

Higher rate taxpayers get 40% or 45% pension tax relief, while basic rate taxpayers get 20%.

The Government spends millions of pounds a year on pension tax relief, but many people think it is unfair that above-average earners get to benefit.

Pension tax relief costs the government £40 billion a year in lost tax revenue. Cutting pension tax relief for higher rate taxpayers from 40% to 20% could save the Treasury around £10 billion a year.

What do the experts think?

The possible change to pension tax relief has drawn widespread criticism from pension experts who say it could damage pension savings.

Tom Selby, senior analyst at AJ Bell, says the constant speculation about pension tax relief risks altering investor behaviour and damaging “confidence in the stability of the system”.

He says: “Ironically, in the short-term such stories will inevitably cost the Exchequer cash as savers pile into pensions to make the most of tax relief while it is still there.

“If there are to be reforms to the pension tax framework, they must not risk harming the fragile savings culture that is being developed in the UK. We believe the focus at the moment should be improving the existing system rather than burning the whole edifice to the ground.”

Selby says the lack of clarity about the future of pension tax relief needs to be addressed.

He says: “Savers should be confident the product they commit their hard-earned cash to for decades won’t be subject to constant change. If there is to be further reform to pensions taxation, we urge the Government to take a genuinely long-term approach by committing not to make further changes for at least 10 years.”

Steven Cameron, pensions director at Aegon, says: “Simply removing higher rate relief and granting 20% relief to everyone would not affect basic rate pension savers but would severely dent the attractions for higher rate taxpayers many of whom are far from ‘wealthy’.

“Rushing to cut pensions tax relief could do long term damage to UK retirement savings so we urge the Chancellor and his team to avoid going too far, too fast and instead to engage with the industry to resolve issues. We also recommend testing any new approach with savers to understand how it might change retirement savings behaviours.”

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New rules could help people with medical conditions get cheaper travel insurance

New rules could help people with medical conditions get cheaper travel insurance

The financial watchdog is calling on insurers to make travel insurance more affordable for people with pre-existing conditions.

Brean Horne
Mon, 02/10/2020 – 10:37


The Financial Conduct Authority (FCA) has introduced new rules to help people with pre-existing medical conditions (PEMCs) find cheaper travel insurance.

People with PEMCs often struggle to find travel insurance, even if they are fit to travel. They also face significantly higher premiums from insurers willing to offer a policy.

Under the new rules, insurers will be required to ‘signpost’ customers with PEMCs to specialist firms in the following circumstances:

  • When a customer is declined cover or has cover cancelled due to a PEMC
  • When a PEMC is excluded from a travel policy
  • When a customer will have to pay more for travel cover because of their PEMC

Insurers will have to implement these requirements by 5 November 2020.

The government-backed Money and Pensions Service (MaPs) will create an online directory which will list providers that specialise in protecting travellers with serious medical conditions.

Firms will be required to include details of the directory on their website within 30 days of It going live – which is expected by the end of summer 2020.

Around 14.1 million customers with PEMCs seek out travel insurance policies each year.

Of these 11% settle for a policy which does not cover their condition and 0.7% are declined for cover altogether, according to the FCA.

People with serious medical conditions could save around 40% on travel premiums by switching to a specialist provider, the FCA estimates.  

Eve Byrne, head of campaigns at Macmillan Cancer Support says that while the new rules are essential for travellers with PEMCs, the travel insurance industry needs to do more.

The insurance market must change its approach to covering people with pre-existing conditions to ensure that people living with cancer can access a competitive range of options that appropriately meet their needs,” she says.  

Hugh Savill, director of regulation at the Association of British Insurers says: “The vast majority of consumers can obtain travel insurance, including those with pre-existing medical conditions.

“While we welcome the FCA’s changes to strengthen the current signposting measures, the £100 premium loading trigger must be carefully and thoroughly worked through to ensure that it delivers real customer benefits and makes the buying process as smooth as possible.”

How to find cheap travel insurance

If you have a pre existing medical condition, the following tips could help you cut the cost of your travel insurance premium.

1. Buy early

It’s important to buy your travel insurance as early as possible.

Sorting travel cover when you have a pre-existing condition can be a lengthy process so it’s best to start your application early.

Travel insurance also covers any unexpected incidents before you go on your trip.

So, if you have to make any cancellations before going away, having a policy in place can help ensure you can recoup your costs.  

2. Shop around

Price comparison websites are a great place to start your travel insurance search.

They allow you compare hundreds of deals quickly and will give you an idea of the types of the deals available.

3. Try a specialist insurer or broker

If you have a serious medical condition or are unable to find suitable deals from mainstream insurers it may be worth trying specialist insurance providers or using a broker.

The British Insarance Brokers’ Association (Biba) can help you contact the right broker in order to find a suitable travel policy. 

4. Read the terms and conditions carefully

Before buying an insurance policy it’s vital that you read the terms and conditions.

Insurance small print is notoriously tricky to understand so if you have any questions, get in touch with the provider for clarification.

Once you agree to the terms of a policy, making a claim will be impossible for things that are expressly excluded.

This could result in you having to pay more to cover the cost for any unforeseen incidents which aren’t covered, in addition to the policy itself.

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