Osborne rips up the pension complexity
Share
The coalition Government has torn up the previous administration’s proposed complex restrictions to higher-rate pension tax relief in favour of a reduced annual allowance of between £30,000 and £45,000.
The pension industry has expressed relief at the move after lobbying the Government since former Chancellor Alistair Darling revealed plans to taper tax relief on pension contributions from 40 per cent to 20 per cent for incomes over £150,000 in last year’s Budget.
The coalition has vowed to introduce legislation before the summer recess to repeal the changes, claiming the rules would have “unwelcome consequences for pension saving, bring significant complexity to the tax system and damage UK business and competitiveness”.
The Budget document says: “Having listened to the concerns of the pensions industry and employers, the Government has reservations about the approach adopted in Finance Act 2010.
“An alternative approach involving reform of existing allow-ances, principally of a significantly reduced annual allowance, might better meet Government objectives.”
It says an annual allowance in the range of £30,000 to £45,000 would raise the necessary tax revenue and it will consider the exemption of basic-rate taxpayers as well as making allowances such as one-off spikes in pension accrual caused by redundancy, for example.
Standard Life recently calculated implementing Darling’s restriction - which was increased to include people earning over £130,000, if their employer’s contributions brought their income up to £150,000 - would cost £2.5bn. The Labour Government had estimated costs at just £345m.
Head of pensions policy John Lawson says: “We were looking at huge implementation and operating costs because the new regime was so complex. Even IFAs were finding it difficult to comprehend, never mind the individuals themselves.
“This is a victory for common sense as it raises the same amount of tax and keeps high-earners in pension schemes. The previous rules were verging on madness so I am full of praise for the Government for doing this.
“It is a breath of fresh air. I think advisers will welcome the news with open arms.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “It is what the industry has been calling for. For most pension savers, this reduced annual allowance will be perfectly adequate and it actually shifts the emphasis back on to regular savings, which is a very positive message to be sending out.”
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
