The removal of higher rate tax relief for pension contributions is ‘inevitable’ and will pose a threat to ‘high end’ providers Standard Life and St James’s Place (SJP), according to a note from analyst RBC Capital Markets.
The note on Aviva said the need for more tax receipts after the UK left the EU was likely to drive reform of pension tax relief.
It said that although Aviva was likely to be hit, ‘high end’ rivals SJP and Standard Life would be more likely to suffer.
RBC said it expected the amount of money SJP made from new pension business as a percentage of its total profit to fall from 37% to 34% between 2016 and 2018.
For Standard Life it said it expected this to fall from 25% to 22% over the same period.
In contrast, RBC expected Aviva’s figures to drop from 6% to 5% between 2016 and 2018. It also said Prudential and Old Mutual would remain the same at 1% and 3%, while the profitability of Legal & General’s pension business is expected to increase over the two years from 4% to 6%.
RBC said it thought pension tax relief for higher earnings would ‘inevitably’ be cut after the government moved to reduce the Money Purchase Annual Allowance in last month’s Autumn Statement.
‘The government published a consultation on reducing the Money Purchase Annual Allowance. In this paper we believe the government subtly sets out its intention to get rid of higher rate tax relief on pensions,’ the note said.
‘The government has denied that it intends to remove higher tax relief but if it does not deny then there is a major risk that customers use up previous and current pensions allowances which would cost the government billions in lost tax revenue.’
Tom McPhail, head of retirement policy at Hargreaves Lansdown, previously said the consultation indicated ‘the writing is on the wall’ for higher-rate tax relief.
Source: City Wire