The delay of the budget until March 2021 gives the Charcellor more time to consider his options for dealing with the mountain of debt brought on by the Coronavirus (or put it another way what taxes need to be increased). One area that is potentially high on the list of targets are pensions – and in particular the removal of higher rate income tax relief. While this would still mean pensions remain the most tax efficient savings vehicle, it’s a stong way of raising additional revenue. If you’re considering making additional pension contributions, and in particular lump sum payments, it may be worthwhile opting to do this sooner rather than later.
Another possible option would be to reduce the amount of Pension Commencement Lump Sum ( PCLS or tax-free cash) that an individual can take when they decide to draw benefits. At present you can draw up to 25% of the value of the pension as a tax-free lump sum. For a £1m pension fund this would mean £250,000 tax free. A further option may be to reduce this amount to £100,000 as an example. While this would have no impact on most people, those fortunate enough to have higher value pensions could be impacted. Less PCLS means more will be taken as income which is taxable.
One area where we all would have little say, and has been widely discussed in the media, would be for the government to remove the triple lock on state pension increases, though whether the government have the appetite to do this remains to be seen.