Norwich Union director of pensions marketing Brian Bussell says the decision to scrap higher rate tax relief on pension contributions for people earning over £150,000 could add unnecessary confusion to the market place.
He says: “The restriction on higher-rate pension tax relief at the level proposed today will not affect the majority of savers, it adds complexity to a market that we have long been trying to simplify.
“While the removal of any incentive to encourage long-term saving is disappointing, the rise in ISA allowances and more generous pension credit allowances are a welcome change.”
Similarly, Scottish Widows head of pensions development Ian Naismith says: “While any change to pensions tax relief is regrettable we welcome the fact that it is restricted to those earning over £150,000 a year. However, this is an added complication to the pensions system.
“Although this will only affect a very small proportion of pension savers, it reintroduces complexity only a short time after pensions tax simplification came in.”
Standard Life senior pensions policy manager Andrew Tully says the move, which sees the current 40 per cent higher rate of relief gradually taper to the 20 per cent basic rate for those earning £180,000 per annum, will leave thousands of contributors out of pocket.
He says: ”For example if a member wants to pay £100,000 into his pension, this currently costs £60,000. It will now cost them £80,000, as only basic rate relief is added. The individual will be £20,000 worse off.
“While this change appears to only impact on very high earners, it creates a worrying precedent by breaking the long-standing principle that an individual receives tax relief on their pension contributions at their highest marginal rate. The Government must provide assurances that it will not further erode pensions tax relief in future.”
However, Legal and General wealth policy director Adrian Boulding says the pension industry earned a “well deserved victory” today in successfully heading off any plans that the Government was considering to scrap higher rate tax relief on pension contributions.
He says: “For both basic rate tax payers and those paying higher rate tax with earnings under £150,000 a year, paying into a personal pension, or a company pension, is still the best way for people to save for retirement. The Government has a clear objective to help millions of people to start making modest savings and investing in a pension, and we welcome the fact that the Chancellor has retained the tax relief incentive for the majority of taxpayers.”
Boulding is now suggesting a number of options high earners could consider when the changes come in, including using their increased ISA allowance, and continue using pensions until 10 years prior to retirement then make further contributions into offshore bonds or onshore vehicles that will deliver primarily capital gains taxed at 18 per cent for the last ten years before retirement date.