BUDGET: Chancellor may rewrite pension tax relief rules
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Chancellor George Osborne says he will work with the pensions industry to find an alternative to the reduction of pension tax relief for higher earners as long as the £3.5bn revenue is still achieved.
The Budget documents suggest a reduced annual allowance of between £30,000 and £45,000 would achieve the necessary tax take.
In his Budget speech, Osborne says: “Let me say something about the previous government’s policy to reduce pensions tax relief for people on high incomes due to come in next year.
“Many businesses are alarmed at the complexity that this will introduce. I have listened to those concerns however I must also protect the £3.5bn of revenue this policy was set to raise from high income people.
“I will therefore work with the industry on alternative ways of raising the same amount of revenue, potentially by reducing the annual allowance.”
Chancellor Alistair Darling introduced plans to taper tax relief on pension contributions from 40 per cent to 20 per cent for those earning between £150,000 and £180,000 in last year’s Budget.
He then, in the pre-Budget report, increased the scope of those affected by including people earning more than £130,000, if their employer’s contributions brought their income up to £150,000.
The Budget document states: “The Government will continue with plans it inherited to raise revenues from restricting pensions tax relief. The Government is committed to protecting the public finances by introducing reforms that raise no less revenue that existing plans.
“However, it believes that the approach legislated for in Finance Act 2010 could have unwelcome consequences for pension saving, bring significant complexity to the tax system and damage UK business and competitiveness.
“An alternative approach involving reform of existing allowances, principally of a significantly reduced annual allowance, might better meet Government objectives. Provisional analysis suggests an annual allowance in the range of £30,000 to £45,000 would raise the necessary yield.
“The Government wishes to engage employers, pension schemes, experts and other interested parties to determine the best design of a regime.”
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Readers' comments (7)
Andrew Harwood | 22 Jun 2010 2:15 pm
The problem with this approach is that businessmen always find ways of avoiding tax and this move is unlikely to achieve the required result. Furthermore, the Government continues to avoid the issue of long term care for the elderly.
There is little doubt that as people live longer they eventually require more care and the State is unlikely to be able to cope in future. Pension Funds could be used to pay for such care in old age. Once such care is required the remaining fund or commutation of the residual annuity could be accelerated and then drawn down in order to pay for this expense. Only after the fund is exhausted should the State need to step in. This is a simple but effective improvement on the current pay as you go funding that is currently adopted.
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Anonymous | 22 Jun 2010 2:19 pm
I've got an idea for raising a little. Put a windfall tax on the FSA and don't eject a lot of perfectly good IFAs from the industry and on to the dole in two and a half years.
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Anonymous | 22 Jun 2010 2:19 pm
I've got an idea for raising a little. Put a windfall tax on the FSA and don't eject a lot of perfectly good IFAs from the industry and on to the dole in two and a half years.
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Anonymous | 22 Jun 2010 2:26 pm
Reintroduce tax on betting in bookmakers - used to be 10% - I reckon that would re-raise a further 2.5Bn
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FSA BIG STATE SMALL IFA | 22 Jun 2010 3:41 pm
Bin RDR, then bin (not rename) The FSA. The FSA estimated £430m RDR costs and then doubled their estimate. They have "never" conducted a cost benefit analysis only a cost cost analysis. Get rid of the RDR and get rif of the FSA quango - don't just rename it and reappoint the same spivs. If you want the public to invest and save rather than borrow and live off the state don't decimate 10,000 IFA's who represent the best distribution service this country has even seen.
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Robert Donaldson | 22 Jun 2010 5:44 pm
At least if the treasury talk to our industry then we might end up with some common sense prevailing.
However, I have always had my worries that restricting relief means that many people cannot play catch up by making substantial employee/employee contributions in the good years for the years when they make no contributions.
The great thing about the old days of EPPs and past service etc is now out of the window.
How many company directors only start making 'real' money when they have been running their business for some time. It is often only then that they think about serious pension planning.
Restricting the relief does not allow this.
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Steven Farrall (Adviser Alliance) | 23 Jun 2010 9:19 am
Pension contribution tax relief should be limited to the standard rate of tax. And the limit for relief set at a factor of NAE, say three times (that would make it about £72,000 currently). Behind this is the concept that we should have a flat income tax rate of (say) 20% MAX starting at about £12,000 p.a.
Of course at the same time FS schemes must be outlawed and all state employee FS schemes closed with the benefits accrued by existing members preserved. The new State employees schemes would all be money purchase, making sure that everyone had an interest in wealth creation and that a whole class of employees was not entirely disconnected from economic reality.
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