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.”