In March, Mr Osborne, the chancellor announced surprise reforms that will give retirees full freedom over how they take pensions built up in defined contribution schemes. But Chris Daykin, a former senior adviser to the government, speaking to the Financial Times said: "I believe a primary driver for Treasury was a desire to bring forward tax revenues. The assumption must be that many retirees, given the chance, will take their money out as quickly as possible… So, presumably, the Treasury are assuming cash is taken quickly, if not immediately, and that it is mostly going to be taxed at standard rate."
The implication is that pensions will be further targeted to increase tax revenues. Anyone remember Pensions A-day, 6 April 2006, the date when our previously complex pension system was complicated yet more through a process called "simplification?" Since then, governments have reduced the annual allowance for pensions and the lifetime allowance for pensions.
The new lowest ever £1.25m lifetime allowance on pensions is putting off savers as young as 45, according to experts from wealth managers Brewin Dolphin. Head of financial planning, Nick Fitzgerald is concerned that pension savers, who have been "kicked around like a political football", are missing out on valuable tax relief because of fears that they might hit the cap.
"Some 45-year-olds with 20 years to go are already deciding not to save more into their pensions because of the cap," he says. "They are missing out." According to Brewin Dolphin, a 45-year-old with a £350,000 pension pot, who contributes £1,000 a month would only hit the cap after 20 years, assuming 6 per cent growth per year.
The next logical step for governments set on raiding the pensions pot is to reduce tax relief on pensions. "Our message on 40 per cent pension tax relief is 'buy now while stocks last'," says Mr Fitzgerald. "Labour is talking about basic tax relief only on pension, as are the Liberal Democrats. The Conservatives are being very quiet. I would be willing to bet 40 per cent relief will not be around forever."
When we save for a pension we are simply deferring the date we pay tax on our income. The IC has reported on how this represents a 'good deal' for higher rate working taxpayers who will benefit if they become basic rate tax payers when drawing an income in retirement from their pension.
As we pointed out in IC 27 June 2014, pensions saving works well for most people, whatever their tax band, pre and post retirement. But this depends on income tax rates staying the same as they are now - and that could change.
Pensions guru Steve Bee, the former head of pensions at Prudential, says: "The elephant in the tax-relief debate is that basic-rate taxpayers may be taking an enormous leap of faith when they save in a pension."
It's not that long ago that the basic-rate of income tax was 35 per cent (in 1977). So it is perfectly possible that people getting 'tax-relief' at 20 per cent today on pension contributions could end up paying income tax at a much higher rate in the future when they draw their pensions as income.
Mr Bee says: "In this day and age, when the dishwashers in our kitchens have more computer power than the Apollo spaceships did, we ought to be able to use our government computers to ensure that the rate of income tax that applied at the date we defer income is the rate that is chargeable when we eventually come to draw that income years hence."
If the government did this, then no-one would gain from deferring income when tax rates are high, but crucially, no-one would stand to lose either if they defer income when tax rates are unusually low.
Mr Bee says: "Without giving people what is commonly referred to as 'tax-relief' when they put money aside for the future there is a real risk that some people could end up paying income tax twice on earnings they put aside for their retirement."
The two real benefits for pension savers are the investment growth on gross savings and the tax-free cash lump sum at the end of the savings process. Any reductions to tax-free cash would be an assault on one of the only genuine incentives for people to use pensions.
But, if these pleas fall on deaf ears, in the context of saving for retirement it is important to make the most of your individual savings account (Isa) wrapper alongside pensions. Recent improvements to the Isa regime are an encouraging sign that Isas will not be targeted for revenues. At least not for a while.
