Attack on pension tax relief would be 'massive vote-loser'

24 November 2011 | By Tom Selby

Pension experts have warned that any Government move to further restrict higher-rate pension tax relief will hit middle-income voters.

Policymakers have come under increasing pressure from Labour ministers, including former Chancellor Alistair Darling and Shadow Treasury chief secretary Rachel Reeves, to reform the pension tax system.

Chancellor George Osborne is understood to be considering setting out proposals either to reduce tax relief for higher-earners or cap the amount of tax-free cash that people can take as a lump sum at retirement in his autumn statement next week.

Under the current rules, people over 55 can take up to 25 per cent of their total pension fund tax-free. Tax relief on pension contributions is granted at the marginal rate.
James Hay head of technical support Neil MacGillivray says: “It would be a big mistake for the Chancellor to go for pension tax now because it will affect people who are likely to vote for them at the next general election. We are not just talking about people with huge salaries, anybody earning over £42,000 will be affected.

“You also have to consider the impact this could have on automatic enrolment because I think if you cut incentives to save, then more people are inevitably going to opt out.”

Standard Life head of pensions policy John Lawson says: “The Government and Labour need to be very careful when they talk about cutting higher-rate relief.

here is a perception that higher-rate relief only goes to fat cats but that is not the case. We are talking about taking benefits away from the squeezed middle here at a time when inflation is high and wage growth is low.

“It would be a massive vote-loser if the Government went ahead with it.”

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