Reeves proposes pension tax relief cuts to save £10bn annually

Rachel Reeves is considering significant reforms to pension tax relief as part of her upcoming budget on October 30. A report by the Fabian Society highlights that the current tax breaks for pensions cost the government £66 billion annually, with a disproportionate amount benefiting higher earners. The report suggests that upper- and top-rate taxpayers received approximately 53% of the tax relief in 2022-23, while only 35% of the relief went to women. This inequity has prompted calls for a more equitable distribution of tax relief. The proposed changes could potentially raise at least £10 billion a year, addressing a substantial portion of the £22 billion shortfall identified by the chancellor. Options for reform include establishing a flat rate of tax relief for all income levels and subjecting inherited pensions to income tax and inheritance tax. These measures aim to redistribute financial support from wealthier individuals to low and middle-income earners. Andrew Harrop, the general secretary of the Fabian Society, emphasizes the need for a more sustainable and fair pension tax relief system. He argues that the current system is not only costly but also poorly targeted, benefiting those who need it the least. The proposed reforms align with Labour's commitment to safeguarding family living standards while raising necessary revenue. As the government faces increasing pressure on public finances, these reforms could play a crucial role in balancing the budget while promoting fairness in the tax system. The outcome of Reeves' budget could significantly impact the future of pension tax relief in the UK.