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UK FISCAL: A spending stimulus from tax free pension lump sums? (2/2)

UK FISCAL
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  • Speculation had originally surrounded making changes to pension contributions are paid in "tax free" so higher rate tax payers are able to pay into a pension and avoid paying 40% tax - there had been some talk this might be reduced down to e.g. 30%, but the latest reports suggest that the Chancellor has rejected this proposal as it would be too hard to implement for public sector workers on final salary pension - potentially triggering 5 figure tax bills. As the speculation has died down, we don't think there will have been substantial extra pension contributions ahead of the Budget.
  • Still likely to be under consideration is paying national insurance on pension contributions. Or even more likely employers having to pay national insurance on pension contributions - which could be equivalent to more than a 1ppt increase in the employer national insurance rate. If this is changed, it could cause some employers to make their pension schemes less generous, but we don't think there will have been a huge increase in employees trying to maximise their contributions in anticipation of this.
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  • Speculation had originally surrounded making changes to pension contributions are paid in "tax free" so higher rate tax payers are able to pay into a pension and avoid paying 40% tax - there had been some talk this might be reduced down to e.g. 30%, but the latest reports suggest that the Chancellor has rejected this proposal as it would be too hard to implement for public sector workers on final salary pension - potentially triggering 5 figure tax bills. As the speculation has died down, we don't think there will have been substantial extra pension contributions ahead of the Budget.
  • Still likely to be under consideration is paying national insurance on pension contributions. Or even more likely employers having to pay national insurance on pension contributions - which could be equivalent to more than a 1ppt increase in the employer national insurance rate. If this is changed, it could cause some employers to make their pension schemes less generous, but we don't think there will have been a huge increase in employees trying to maximise their contributions in anticipation of this.