The scheme to help boost your retirement savings is so absurdly generous that, were it not offered by the Government, I’d suspect it was a scam. If you put £80 in your pension, the government will chip in a free £20, if you are a basic-rate taxpayer.
If you are a higher-rate taxpayer, you only need put in £60 for the Government to bung you £40. For additional-rate taxpayers, put in £55 and the Government hands them £45.
As with all good deals, I’m sure it can’t last forever.
That’s why three weeks ago – just hours before Rachel Reeves gave her first major speech to Parliament as Chancellor of the Exchequer – I slipped out of the office to call my pension provider and ask to add a small lump sum to my nest egg. I wanted to do it just in case she made pension tax relief less generous.
Reeves had been hinting that ‘difficult decisions’ would have to be made – a clear warning shot that tax rises or benefit cuts were on the horizon.
Rachel Reeves had been hinting that ‘difficult decisions’ would have to be made – a clear warning shot that tax rises or benefit cuts were on the horizon
In the end, it was pensioners who took the blow, with an end to the winter fuel allowance for all bar those who receive pension credit.
I didn’t think it likely that she would reform pension tax relief in that speech – it’s a mammoth change that surely should only be made after consultation and in an official Budget statement.
But stranger things have happened – she wouldn’t be the first Chancellor to blindside the financial services industry with a massive, unexpected pension reform.
And, as is often the case when I spot a great deal, I didn’t want to miss out by leaving it too late.
Now, growing numbers of pension experts are expecting Reeves to overhaul pension tax relief in her Budget on October 30.
Suspicions are mounting in part because Labour has not denied that this is her plan. And partly because many agree that the current arrangement really is almost too good to be true.
Of course she may not tinker at all, as doing so wouldn’t be straightforward and could have serious consequences for public sector schemes in particular.
Chancellors in the past have considered it – and then stepped back because it has not been worth the trouble. If Reeves does go ahead, the most likely outcome will be a flat rate of pension tax relief. If she sets the flat rate at higher than 20 per cent, basic rate taxpayers will get an even more generous deal than the one they currently enjoy.
Growing numbers of pension experts are expecting Reeves to overhaul pension tax relief in her Budget on October 30
But a flat rate would almost certainly leave higher and additional rate taxpayers worse off.
If you are a higher or additional rate taxpayer and have money that you can do without until you access your pension, it may be worth joining me and adding a lump sum to yours as well.
Of course, it needs careful consideration. Building up a lump sum in the first place is no mean feat for most of us.
There are also caps on how much you can put in your pension every year – check with your provider or an adviser to make sure paying more into your pension is right for you.
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You also need to be sure that you’d be happy making a lump sum pension payment now even if the Chancellor leaves the current system unchanged – as she well might. There is always a chance that you will need the money sooner and wish you hadn’t squirreled it away.
But I counted how many years it would be until the earliest time I could access the money (at age 58, which is 18 years away in my case). Then I counted 18 years back to remember what was going on in my life then (at age 22).
And, I tell you what, 18 years ago feels like it was yesterday. I’m hoping that by the same (very unmathematical) logic, when the next 18 years go by in the blink of an eye, I’ll thank myself for boosting my pension now.
My pension provider automatically added 20 per cent tax relief to my pension. Kerching.
The remaining 20 per cent I’m going to have to squeeze out of HMRC. You can do this by filling out a tax return or getting in touch with HMRC and asking it to hand over the tax relief.
This is the bit I’m not looking forward to. As many as 56,000 HMRC callers were cut off last year after waiting over an hour on hold, a report revealed last week. What a shameful performance.
I dread to think how much tax relief savers have missed out on because they either didn’t realise they had to apply to HMRC to receive it, or because they gave up waiting on the phone to get through to it. The old adage that ‘if it’s too good to be true, it probably is’ overwhelmingly holds true in the world of personal finance.
But it falls apart when it comes to the current pension tax relief system. Enjoy it while you can…
Ahead of my wedding in a couple of weeks, I’ve been asking people how they manage their household finances with their spouse. So far, no two models are the same. Some don’t merge their finances at all, others put everything into one pot and share the lot. What works for you? I’d love your advice.
Cruel rules that mean cancer survivors can’t go on holiday
It is only when I’m on holiday that I remember what truly relaxed feels like. Day to day I get so used to various aches and creaks – caused by being sedentary at a desk for hours, becoming overheated on London’s Underground, or the adrenaline of work deadlines – that I don’t notice them anymore.
Holidays are essential for a reset. So it made me seethe when I read a study from Queen’s University Belfast that cancer survivors are being cruelly denied travel insurance and other services – or being forced to pay significantly higher premiums that make holidays prohibitively expensive.
Cancer survivors are being cruelly denied travel insurance and other services – or being forced to pay significantly higher premiums that make holidays prohibitively expensive
People who are now cancer-free are being forced to give up on going on holiday often when they need one the most. Either that, or they take a big risk and travel without insurance. That’s because they must declare their previous cancer diagnosis to insurers.
Have you been in this position? Please get in touch. rachel.rickard@mailonsunday.co.uk
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