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Annual allowance most likely target for pension relief cut

Chancellor George Osborne is considering cutting the annual allowance for pensions savings to £40,000 in this month’s Budget, according to a report in the Financial Times.

Currently, those with annual retirement savings of up to £50,000 receive tax relief at their marginal rate. The Government cut the threshold from £255,000 to £50,000 last April as part of its annuitisation reforms.

The Government is looking to fund an increase in the income tax threshold, from £8,105 to £10,000, by the end of this Parliament, a move likely to cost over £9bn.

It has also been reported that Osborne could soften the planned withdrawal of child benefit payments for higher rate taxpayers, due to take effect next year, pushing the threshold to £50,000.

Cutting the annual allowance to £40,000 is only likely to save the Government £600m, while cutting it to £30,000 would save between £1.6bn and £2bn. Scrapping higher-rate relief altogether would save up to £7bn.

Hargreaves Lansdown head of pensions research Tom McPhail says: “The Government should leave pensions alone. Better still, it should give a commitment that it will leave pensions alone for at least the remainder of this parliament and it should call on the opposition to form a consensus that pension taxation is off the agenda for the next 10 years.

“This year marks the start of auto-enrolment. If it fails then there is no hope left for the UK’s retirement provision. Evidence is already available from New Zealand that political tinkering can and does undermine people’s trust in pensions and their willingness to save for the long term.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Question for clients – “If you do not wish to pay into a pension plan, what else are you going to put your money into in order to live to a decent standard when you retire?”

    Second question – “What other type of investment offers tax relief on premiums, thus enhancing each payment by a minimum of 20% initially and that can tailor your individual plan to match your attitude to risk?”

    Third question – ” Do you trust the UK government to make appropriate provision for your old age, care and well being ?”

    Answers on a post card

  2. Answers to Ned Naylor:
    Q1 – Don’t know & don’t care – I’m off to the pub!
    Q2 – see above
    Q3 – Absolutely I do – I know that if I spend all my money now & retire with nowt, I will have everything handed to me on a plate, have all my care provided for including a place to live / be looked after. Why on earth would I bother saving to look after myself? Where is the incentive??

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