There is an ongoing discussion in Treasury circles, fuelled by lobbying from public sector unions, that the recent public sector pay deal may sideline any possible reduction in higher rate tax relief in the forthcoming budget.
The Chancellor's upcoming Autumn Budget 2024 is expected to address the need for fiscal savings, and the vast costs of pension tax relief, estimated at £50 billion annually, are seen as a potential target for reform.
However, there is political sensitivity surrounding this issue. Public sector workers, particularly those in mid- to senior-level positions, benefit significantly from higher-rate pension tax relief, and cutting this could lead to a backlash. As a result, it's uncertain whether the Chancellor will pursue this route, especially given the desire to avoid alienating a critical voting group.
Instead, alternatives such as changes to National Insurance on employer pension contributions or caps on tax-free lump sums are being considered as more likely options.
While higher-rate relief is still under review, the public sector pay deal, and broader political considerations may make its removal less likely in the immediate future. However, the Chancellor still has wider economic concerns and if funds are not to be found from a reduction in pension’s tax relief, where else is the taxation axe likely to fall?