McPhail fears Treasury to target basic pension allowance

The basic pension contribution allowance could be the next target in the Government’s plans to cut pension relief, according to Tom McPhail.

Hargreaves Lansdown head of pensions research says the tax loophole is an obvious target for a Government looking to raise income.

Currently, those who do not pay tax can make a contribution of up to £2,880 a year and receive tax relief on it, grossing the money up to £3,600.

However, the loophole is often used by the wealthy, who give money to a spouse or child who can then make a pension contribution and receive an additional £720. McPhail believes this loophole could soon be closed.

"We have got a situation right now where the Government has no money to fund its projects, and they will be on the lookout for loopholes like this," he says.

Because the exemption is mainly used by the wealthy and their close relatives, the removal of the basic pension contribution allowance is unlikely to be noticed by the majority of voters, and could even be seen as further taxation of the rich.

"What worries me is that any changes to basic pension contribution allowance send out the wrong message on pension saving yet again," McPhail adds.

"It would send out a message that long-term saving is not a priority for the Treasury, at a time when we should be encouraging people to save for the future."