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IFS leads pleas to scrap tax relief restrictions

The Institute of Fiscal Studies and PricewaterhouseCoopers have both slammed Chancellor Alistair Darling’s decision to restrict tax relief on
pensions for high-earners in their response to the Treasury’s consultation.

IFS deputy director Carl Emmerson says the move will create complexity, unfairness and inefficiencies.

He says: “The Government’s goal is to raise money by reducing the subsidy that the wealthy enjoy on their pension contributions.

“But many people on high incomes will still be able to receive unrestricted income tax relief on their pension contributions, for example, by
making greater use of salarysacrifice arrangements.”

Emmerson says a better approach would be to reduce the annual allowance from its current level of £437,500.

PwC says that the move will lead to further deterioration of pension provision for people in all earnings’ brackets and will accelerate defined-benefit scheme closures.

The firm surveyed 157 large employers and 77 per cent said the pension tax relief proposals had further reduced their motivation to provide
workplace pensions.

Pensions partner and chief actuary Raj Mody says: “Increasingly, frequent change to the pension framework and the uncertainty this creates has already dented employers’ inclination to support occupational pension plans.

“These new proposals will make it unattractive for higher-earners to continue to participate in current company pension arrangements.

“This, together with a loss of trust in the framework governing pensions, means that the whole workforce will feel the impact. We are already seeing it.”

PwC is strongly urging the Government to scrap the proposals entirely.

Mody says: “We stand by our suggestion of lowering the annual allowance instead. This would allow everyone to build up a core level of pension without penal tax effects.”

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