View more on these topics

Industry backs curbs on tax relief for high earners

Hoban: ‘We have taken a tough but fair decision’

The financial services industry has come out in support of Treasury proposals to curb tax relief for high earners.

The measures, announced by Treasury financial secretary Mark Hoban last week, will see the annual allowance for pension saving reduced from £255,000 to £50,000 from April next year. Any pension contributions above £50,000 will be subject to a 55 per cent tax charge.

The lifetime allowance has also been cut from £1.8m to £1.5m, which will take effect from April 2012.

The Treasury has also heeded industry calls for a three-year “smoothing period”, a measure it hopes will prevent one-off spikes in contributions incurring a huge tax bill.

Under this proposal, the unused allowance from up to three previous years can be carried forward to offset against an excess contribution.

The Treasury says the reforms will impact on 100,000 people, 80 per cent of which have inc-omes above £100,000.

Hoban says: “We have abandoned the previous Government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision. The coalition Government believes our system is fair, will preserve incentives to save and, compared with the last Government’s approach, will help UK businesses to attract and retain talent.”

Mattioli Woods sales and marketing director Murray Smith says the flexibility of the annual allowance represents “very good news” for Sass and Sipp savers. He adds: “It is a positive step on the whole – it is very good news for small businesses and I have never had clients that have consistently put anywhere near £255,000 into pension schemes on an annual basis.

“What they have is spikes in profit. They have quite volatile trading and it will be very helpful for them to be able to play catch-up on their contributions. It will allow us to carry on with quite a lot of planning around how pensions actually support small businesses.”

The Treasury says the reduction in tax relief payouts to higher earners will save the Government £4bn. Smith says figure seems “very optimistic”.
A consultation in November will look to address outstanding technical issues, including the treatment of savers who are close to the new £1.5m lifetime allowance limit and people whose savings fall between £1.5m and £1.8m.

Higher-rate tax relief proposals

  • The annual pension saving allowance will be cut from £255,000 to £50,000 from April 2011
  • Unused parts of the allowance may be offset over three years in an effort to prevent high tax charges in the event of a one-off spike in contributions
  • The lifetime pension saving allowance will be reduced from £1.8m to £1.5m from April 2012
  • The flat factor, used to calculate taxable income for members of defined-benefit pension schemes, has increased from 10 to 16
  • People paying 50 per cent tax will still be able to claim relief at their full marginal rate


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. Most of the changes seem reasonable, but am I alone in finding the reduction in lifetime allowance potentially damaging?

    If it was only a limit on pension inputs it would be defensible. But because it is a limit on total pension holdings it punishes people who might put ordinary amounts into pension but who find, either by luck or skill, investments that perform extraordinarily. And this reduces the incentive for good investment stewardship.

    Now that the annual allowance is reduced, shouldn’t the lifetime allowance have been either scrapped altogether or at minimum re-framed to cover only inputs?

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm