High-earners to get boost in tax relief

Currently, higher-rate taxpayers get 40 per cent tax relief on pension contributions but from April 2010, many will receive an extra 5 per cent.

Hargreaves Lansdown pension analyst Nigel Callaghan says: “The tax hike for high-earners makes the incentive to save into a pension even stronger.”

But AJ Bell marketing director Billy Mackay is concerned that people might hold off savings until the 45 per cent rate comes into force. He says: “People who earn over £150,000 may choose to defer pension contributions until the 2011/12 tax year when they will benefit from tax relief at the higher rate. It seems clear that the Government wants to reduce the incentive to save over the short term.”

But Callaghan says: “The cost of delaying pension contributions is huge, even just for one year, so I doubt that people will wait for the tax rise. If they keep their money in their pocket, they will still be taxed 40 per cent.”