Industry experts have called on the Government to scrap the upcoming higher-rate pension tax relief restrictions following calculations suggesting it will cost seven times more than the Treasury estimated.
According to Treasury figures from February, implementing the restrictions on those earning over £130,000 from next April will cost around £345m. But Standard Life says the true cost is nearer £2.5bn, with employees footing £1.38bn of the bill. The rest will fall on employers, pension schemes and providers and the Government.
Standard says the Treasury has also hugely underestimated annual compliance costs with its estimate of £130m compared with Standard’s calculation of £435m, with employees facing charges of £273m.
Standard says the Treasury has failed to account for major costs such as individual advice and the extra expenses for providers in building alternative products.
The insurer estimates that reducing the annual allowance to £50,000 instead would cost £459m, plus £118m annually, and would cost employees £300m and £80m annually. He says this would give the Treasury the same extra revenue of £3.6bn.
Head of pensions policy John Lawson (pictured) says: “This is inefficiency gone mad. Pension savers, their employers and their pension schemes will have to spend £2.5bn so the Treasury can collect £3.6bn of tax. The problem stems from the mind-boggling complexity of these rules. A simple reduction to the existing annual allowance would cost only a fraction to implement.”
Capital Asset Management managing director Alan Smith says: “The whole area has become so complicated it is difficult for advisers to understand the implications for clients, never mind the clients themselves. The Treasury should scrap these changes in favour of a reduced annual allowance that is far simpler.”
Treasury Financial Secretary Mark Hoban has said he is willing to consider alternatives to the proposed changes to higher-rate relief which raise the same revenue. He warned of “widespread concerns” about the cost and complexity of these changes in Parliament in April during aFinance Bill debate.