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AS2013: Pensions tax relief cuts raise 30% less than expected

The Treasury is set to raise 30 per cent less than expected from its cuts to pensions tax relief, according to Office for Budget Responsibility analysis.

The independent OBR report, accompanying the Autumn Statement and published yesterday, shows the Government is set to raise £1.2bn less in 2013/14 from its 2011 reforms than originally estimated. 

The measures are now expected to raise £700m less in 2014/15 then £100m less in both 2015/16 and 2016/17

It was aiming to raise £4bn a year by reducing the upper limit for tax relief on pension contributions from £255,000 to £50,000 in April 2011. It will be cut further to £40,000 next year.

The Government also cut the lifetime allowance from £1.8m to £1.5m from April 2012, which is being reduced to £1.25m from next April.

The OBR said lower earnings growth had slowed the rate defined benefit contributions were assessed against relief. 

The Treasury has opened a debate on further changes to pension tax relief with Labour, Liberal Democrats and some Conservative MPs all signalling support for reform.

The OBR report states: “Receipts related to the reforms in pension tax relief announced at Budget 2011 are expected to build up more slowly than previously assumed.

“The yield from the reduction in the annual allowance to £50,000 has been affected by lower-than-expected earnings growth, which has reduced the level of defined benefit pension contributions assessed against the annual allowance.

“As unused allowances can be carried forward, this reduces the yield for a number of years. The yield from the measure is around £1.2bn lower in 2013-14 than in the March forecast, but little changed from 2015-16 onwards.” 

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