A former Treasury minister expects there to be some "tinkering" with the lifetime and annual allowance on pension tax in Wednesday's Budget.
David Gauke, formerly financial secretary to the Treasury and justice secretary, now head of public policy at law firm Macfarlanes, said he expected a "potential increase in the lifetime and annual allowance", as part of measures to persuade people back to work.
Reform in this area is perfectly possible but wholesale scrapping of this tax would not be politically viable, according to Gauke.
He said: "I'd be surprised if [the annual allowance] was ever scrapped. It benefits those at the top end of the income bracket.
"Abolition of the annual allowance would benefit those able to make the biggest contributions to their pension fund who are the highest earners. I would expect the government to be nervous about the political risks of such an approach, especially after the reaction to the 'mini' Budget in September which put forward big tax cuts for the richest.
"The policy would also come out a cost to the Exchequer. Both its revenue raising ability and for political reasons, means it is unlikely to disappear at present."
The current level of the lifetime allowance is £1.073mn, while the annual allowance is £40,000.
There have been many problems with the allowances recently as people's incomes have risen, and more senior professionals, especially those that work in the public sector saving into a DB scheme, have been drawn into the annual and lifetime allowance.
Many expect chancellor Jeremy Hunt to introduce more measures to persuade people back to work including reducing the cost of childcare.
Each year, in the run-up to the Budget, there is speculation about reform of the pension tax allowance to persuade more people to save.
IHT
Gauke, who was speaking at a pre-Budget roundtable, said it was also unlikely that the IHT nil rate band would be increased given that house prices were starting to go on a downward trajectory, and there was little political pressure to change the bands at present.
His colleague Rhiannon Kinghall Were, head of tax policy, also said that as the nil rate band was frozen in the Autumn Statement it seemed unlikely they would change policy four months later, but might be something the government would return to in a more stable economic environment and potentially closer to an election.
melanie.tringham@ft.com
