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.”