Osborne Said to Backtrack on Push to Overhaul Pension Taxes

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George Osborne
Chancellor of the Exchequer George Osborne. Photographer: Ben Birchall - WPA Pool/Getty Images

U.K. Chancellor of the Exchequer George Osborne dropped a plan to overhaul pension tax relief after pressure from industry groups and fellow Conservative lawmakers.

Osborne last year studied whether to scrap some pension giveaways and was predicted to flesh out plans in his March 16 budget, only to be warned off amid concerns it would hurt affluent voters. The revamp will now not occur this month, according to a person familiar with the matter.

A reshaping of the taxes on pensions would have added political risks for Osborne and Prime Minister David Cameron as they seek to rally voter support for Britain to stay in the European Union in a June 23 referendum.

A potential candidate to succeed Cameron, Osborne has lost his frontrunner status to London Mayor Boris Johnson, who is backing a so-called Brexit. The government has already delayed a contentious decision on expanding airports as the debate over EU membership heats up.

At the same time, scaling back tax relief would have helped the chancellor meet his goal of narrowing the U.K. budget deficit. He said last month he may have to make even deeper cuts in public spending to achieve that aim given the state of the economy. He already had to drop plans for reductions to tax credits for low-paid workers after that sparked criticism last year.

Among options considered for pensions were the paring of tax relief for those with high incomes and removing some tax exemptions in return for the creation of savings accounts that could be tapped tax-free on retirement. The government has already begun removing tax restrictions on annuities.

“The threat of radical change to pension tax relief appears to have receded for now but the problems identified in the chancellor’s review and the subsequent national debate remain,” Richard Parkin, head of pensions at Fidelity International, said in a statement.

“We expect this is action postponed rather than action abandoned,” said Parkin. “We should use this time to have a fuller and less hurried debate of how best to support long term pension saving.”

(Updates with Fidelity statement in last two paragraphs.)

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