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Axing tax relief could derail pension impetus

Advisers are warning that any Government move to scrap higher-rate pension tax relief would risk destabilising the savings infrastructure as employers could pull away from good quality provision.

Axing higher-rate relief was a LibDem policy before the general election and was considered by the Government before it decided to cut the annual allowance from £255,000 to £50,000.

Reports suggest Chancellor George Osborne is looking again at cutting higher-rate relief as he struggles to reduce Government spending.
Centre for Policy Studies research fellow Michael Johnson suggests removing pension tax relief for higher-earners would save the Treasury £7bn a year and cutting all relief would save £22bn.

Worldwide Financial Planning IFA Nick McBreen says: “If you want to completely derail the impetus for pension saving, bearing in mind the drastic reductions that have been made on contribution levels anyway, removing higher-rate tax relief would be a surefire way of doing it.

“If you take the next logical step and remove pension tax relief completely, the ramifications in terms of financial planning for individuals and businesses is off the dial. It would be very short-sighted but in the current economic climate it is a serious agenda item.”

Syndaxi Chartered Financial Planners managing director Robert Reid says employers would scale back pension provision if the Government axed higher-rate relief.

He says: “If you switch enough people off providing pensions, there will be a cascading effect. If you discourage the people who are running businesses from saving, then they are hardly going to be generous to the people who are working for them. The two things are inextricably linked.”

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Comments

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  1. One thing i have always found strange is that there has always been more incentive for higher rate taxpayers to save in a pension than lower earners, who are less likely to have free cash.

    Maybe the answer is to have universal rate of relief – say 30% – which is more likely to encourage lower earners to save.

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