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MPs press for rethink over pension relief

The Treasury select committee has called on the Government to monitor the effect of the removal of tax relief on pension contributions for high-earners and consider an alternative if it has a negative impact on pension savings.

In its Budget report published last week, the select committee said the Treasury should consider introducing a cap on annual contributions as an alternative to the tax relief move.

It says: “We note that this Budget marks a departure from the long-standing principle that tax relief for pension contributions should be given at an individual’s highest marginal rate.

“We urge the Treasury to monitor the effect of these changes on pension savings and to keep under review the possibility that a cap on annual contributions might be a more equitable way of reducing the percentage of tax relief that benefits the highest-earners.”

The TSC also called on the Government to report on the revenue raised from the 50 per cent income tax rate in the 2011 pre-Budget report and to assess the yield obtained from the higher rate against its disadvantages.

It expressed concerns over how Chancellor Alistair Darling chose the threshold of 150,000 and the 50 per cent rate saying he “lacked a robust basis”.

The report also rallied the Government to work up contingency plans to finance national debt if the gilt markets fail.

“There are strong reasons why the costs of financing the Government debt could remain low. But if the gilt market were to lose its appetite for Government debt – by no means impossible – the cost of financing that debt could climb to perilous levels.”

Ruth Whitehead Associates principal Ruth Whitehead says: “The Treasury Select Committee is being too cautious. Saving into a pension is still tax-efficient. Basic-rate tax relief remains an important option even though it is lower. This negative spin contributes to a lack of confidence and prevents our economy recovering more quickly.”

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