A government discussion paper could result in significant implications for your retirement income.

In the July Budget, George Osborne launched a consultation on pensions tax relief, stating ‘Pensions could be taxed like ISAs. You pay in from taxed income – and it is tax-free when you take it out. And in-between it receives a top-up from the Government.’

This move comes despite promising back in April, in a pre-election Conservative briefing that ‘we believe the pensions-tax-relief system will be fair and affordable and we will not propose any further changes to the system during the next Parliament’.

The major proposal is to move from an ‘EET’ system, in which contributions and investment returns are tax-exempt while retirement income is taxed (except for the 25 per cent tax-free lump sum), to a ‘TEE’ system under which contributions are taxed, but returns and retirement income are tax-free.


While some believe making pensions more like ISAs would create a simpler pensions system, in reality this is unlikely to be the case. Deciding how to treat current pensions and swapping into new systems could create a lengthy transition period and an administrative nightmare. There would be considerable complexity for NHS pension members who might face immediate tax bills on promotion or awards – despite their actual benefits not being payable for many years.

Higher earners receive 45 per cent income tax relief in the year of contribution, significantly lowering the cost of their contribution. Even with contributions capped, it is highly unlikely that they will be better off under a new “contribution matching” system.

The good news for the Chancellor is that it would also bring an immediate boost to income tax revenues of more than £30billion.

The challenge then for the surgeon body is to believe the promise of tax-free income in say 15-20 years, particularly given the history of transformation to pensions in the last ten years alone. Would a successive government keep the new system in place, change the rules or add more taxes back on, effectively taxing savers twice?

As ever when storm clouds gather, your number one priority should be to check the status of your own finances. Does your wealth need protecting? Do you have a plan for the future?

The consultation will finish on 30 September and further detail should be expected by the Autumn Statement in November.

To ensure you are ready for any proposed tax changes, call one of our advisers on 0207 636 7006.