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George Osborne warned pension relief cut will hit entrepreneurs

George Osborne 480

The Government has been warned cutting the annual allowance for tax-incentivised pension saving will hit small business owners and public sector workers.

The Financial Times today reported that chancellor George Osborne (pictured) met with senior coalition members on Monday to discuss cutting pensions tax relief for high earners.

Osborne has previously pledged to balance welfare cuts with new taxes on the wealthy.

In February – when pre-Budget speculation suggested the Treasury was targeting cuts in pension tax relief – analysis from Standard Life revealed cutting the annual allowance from £50,000 to £40,000 would save the Treasury £600m.

Reducing it by a further £10,000 to £30,000 would save between £1.6bn and £2bn.

Legal & General pensions strategy director Adrian Boulding says reducing the annual allowance would hit small business owners whose pension contributions are likely to be “lumpy”.

He says: “It is not at all surprising pension tax relief is being looked at again.

“This would hit business owners trying to make pension provision in Sipps and SSASs because the nature of that sort of individual is they need to make irregular contributions.

“This is not about someone who pays £50,000 a year now only being able to pay in £30,000 or £40,000 a year. It is about saying the nature of the small business environment means pension contributions are going to be very lumpy.

“Business owners may go 10 or 15 years without paying anything in and then the business will allow them to make a sizeable contribution. These are the entrepreneurs who we want to get the country back on its feet again and it looks like the Treasury wants to give them a bit of a kicking.”

Hargreaves Lansdown head of pensions research Tom McPhail says cutting pension tax relief for high earners – a policy advocated by the Liberal Democrats – could help ease tensions within the coalition.

He says: “I had a private conversation with a Government minister last week who assured me there is no way pensions tax relief will be left alone in the autumn statement.

“When you look at the wider social and political narrative that is playing out at the moment, it would not be surprising to see them reduce the annual allowance.

“That would be simple to deliver and it would help maintain unity within the coalition.”

However, any move to reduce pension tax relief will be strongly opposed by the business community.

Confederation of British Industry head of labour market policy Jim Bligh says: “If the annual allowance is cut from £50,000 to £30,000 or £40,000, a huge swathe of people will be hit.

“This should not be seen as some sort of mansion tax halfway house because we are not talking about rich people in billion pound houses. These are head teachers and doctors and senior nurses who get big employer contributions in defined-benefit schemes.”

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  1. “George Osborne warned pension relief cut will hit entrepreneurs”
    Nonsense, welcome to the real world. Why should the rich receive pension tax relief at a higher rate than basic rate?
    These people can afford to save more than the ordinary man.
    L&G will be miffed as less money will be invested in pensions, welcome to the world of lumpy pensions, just like the rest of us.
    “These are the entrepreneurs who we want to get the country back on its feet again and it looks like the Treasury wants to give them a bit of a kicking.” What a load of twaddle.
    Entrepreneurs are more greedy than the rest of us, that’s why they are Entrepreneurs! They will still earn.
    “This should not be seen as some sort of mansion tax halfway house because we are not talking about rich people in billion pound houses. These are head teachers and doctors and senior nurses who get big employer contributions in defined-benefit schemes.”
    Gold plated pension government pension schemes. They will be well looked after.
    Come the revolution

  2. What about something radical like setting a fixed rate of tax relief at 30% for all? A real incentive for everybody to save into a pension arrangement. Currently, it is a poor deferment for the masses if 20% relief is given at the outset with the prospect of paying more in retirement if/ when income tax rates increase. For the wealthy why save into a pension when the rules constantly change and there is a risk of 55% excess charge. Make pension saving simple, understandable, believable and worthwhile and you never know it might actually start to work once again.

  3. Hugh – I read your comment thinking you were being ironic but sadly I believe you think you are right.

    I can only assume you have never met or worked with an entrepreneur and carry a lot of resentment for any form of successful person regardless who they are. I dislike Osbourne but he is right on this issue as the same pattern has played out time and time again.

    May I suggest you look at the French economy right now (ignore the rating agencies comments as they have a habit of stating the obvious) to see the effect of the stupidity of politians following ideology over economics. You might get an education in real business life. Afterall no economy can defy gravity for long if you kick your wealth creators and motivated middle earners.

  4. Socialst Tall Poppy syndrome from Hugh there, but what who are basic rate taxpayers, and who are they in the future, well all of us because fiscal drag, inflation and tinkering will make it so.

    Conservative election manifesto pledge made13th April 2010
    “An incoming Conservative government would work with the trade unions, businesses and others to address the growing disparity between public sector pensions and private sector pensions, while protecting accrued rights.” The party pledged to undo all the damage done to the pensions framework by successive governments over the past 25 years and reinvigorate the UK savings culture.

  5. This is tax saturation. It why every time they raise tax the tax revenues don’t increase.

    Offshore savings and dividends will just become more attractive.

    The issue is expenditure. Here he may have got his sums right on the public sector pension issue. Trouble is will it be offset by those higher earners?

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