Chancellor George Osborne plans to mount an assault on pension tax relief for higher earners by introducing a lower, flat rate in the March Budget – according to reports.

Under the plans, the 40% and 45% rates of relief would be scrapped and replaced with a flat rate of between 25% and 33%.

In total, pension tax relief costs the Treasury £35 billion a year and a flat rate of 25% could raise about £6 billion.

Current pensions minister Ros Altmann has expressed support for a regime that leaves pensions income taxed because it stopped people withdrawing too much of their pension pots under the pension freedoms and a flat-rate of 25% would benefit lower earners paying a lower rate of income tax as it would effectively top up their pension contributions.

A rate that benefited people at the start of their careers would be consistent with Osborne’s comments in his Summer Budget speech, that ‘it’s time we looked at the other end of the age scale – at those starting to save for a pension’.

New Model Adviser

Nearly half of small businesses say they are not yet ready for pensions auto-enrolment with many firms complaining the additional burden is too great, according to a study.

The research, carried out by the Federation of Small Businesses, found that although smaller firms generally believe auto-enrolment will be good for their staff and that workers should save for the future, many are still unclear what they need to do, when they need to do it, and how much it will cost.

Three in four firms (76%) said auto-enrolment pensions put too much pressure on businesses like theirs.

Over the next two years more than a million small and micro businesses will need to set up a workplace pension for their employees under the Government’s automatic enrolment rules.

January sees the number of employers reaching their designated staging date – the date on which they need to start complying with auto-enrolment – rapidly ramp up with tens of thousands ‘staging’ each month in 2016 and 2017.

The FSB research found that firms which have already introduced a workplace pension reported average overall costs of £1436, with one in five business (19%) reporting costs upwards of £2000.

Although costs are likely to be higher for firms with more than 50 employees, the findings suggest that the smallest business could be underestimating the costs too.

When asked how they accommodated the cost of setting up a workplace pension, 70 per cent of businesses which had already done so said they absorbed the expense into general operating costs or accepted lower profits. However, a fifth (21%) said they had frozen or reduced wages in order to cover the cost of auto-enrolment.

Those firms yet to start auto-enrolment said they were more likely to be planning a wage freeze or cuts in response, with 30 per cent expecting to do so. This suggests that as the rollout reaches greater numbers of businesses, this could act as a further drag on pay growth as employers look to manage increasing costs.

http://www.fsb.org.uk/media-centre/press-releases/small-firms-under-pressure-with-auto-enrolment-surge