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BUDGET 2009 NEWS: Darling axes pensions tax relief for high earners

Chancellor Alistair Darling has announced plans to scrap higher rate tax relief on pension contributions for people earning over £150,000.

The move, which comes into effect in April 2011, is estimated to cut the relief for the 225,000 relevant people from £6.1bn to around £1.35bn, earning the Treasury approximately £4.75bn.

Darling told MPs that the current 40 per cent higher rate of relief will gradually taper to the 20 per cent basic rate, for those earning £180,000 per annum.

He said: “I intend to address an anomaly which sees a tiny proportion at the top take a large slice of the help we give people to help them to save. Mr Speaker, it is difficult to justify that a quarter of all the money the country spends on tax relief on pensions goes as now to the top 1.5 per cent of earners. I believe it is fair that those who have gained the most should contribute more.”

Darling has introduced measures to prevent forestalling with immediate effect. This involves capping pension savings at £20,000 for people who have been earning over £150,000 for any of the previous two tax years, unless their regular contributions are already above this amount.

The Treasury will consult on the implementation of the proposal.

Money Marketing reported in March that the Treasury was seriously considering scrapping the relief this year and Prime Minister Gordon Brown is understood to have hinted at pulling higher rate relief entirely at a meeting last week.

Standard Life head of pensions policy John Lawson says: “This affects only a tiny number of pension savers and comes as a huge relief that pension savings will not be materially damaged.”

Legal & General wealth policy director Adrian Boulding says: “We can claim this as a victory. We have successfully deflected a major attack on pensions and pushed it to an attack on fat cats only.”

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