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New relief cut could hit up to 150,000

‘Another attack on pension savings cloaked in complex rules’

The Government has lowered the earning limit on those affected by its slashing of higher-rate pension tax relief from £150,000 to £130,000.

In his pre-Budget report, Chancellor Alistair Darling predicts the new rules will affect an extra 85,000 people— 300,000 compared with 215,000. But Standard Life believes the restrictions could affect as many as 150,000 additional people.

Standard Life head of pensions policy John Lawson says the limit has, in fact, fallen by £40,000, as the old rules allowed a personal contribution of £20,000 to be deducted from the relevant income.

The anti-forestalling regime limits the level of higher-rate tax relief that savers can receive on pension contributions before April 2011.

The longer-term changes, which will come into force from April 2011, means that tax relief will be tapered from 40 per cent for people on incomes of £150,000 to 20 per cent for people on incomes of £180,000 and over.

But the Government has changed the definition of relevant income, which is used in determining whether an individual is affected by these measures.

Those with incomes below £130,000 before the inclusion of employer pension contributions will not be affected but for those with incomes over £130,000, employer contributions will be included. This will make salary sacrifice over this income threshold effectively redundant.

Standard Life estimates the move will raise the Treasury an extra £100m on top of the £200m that April’s changes will bring in.

Lawson says: “This is yet ano- ther attack on pension savings, cloaked in complex rules. Why can they not simply reduce the annual allowance to achieve the same effect?”

Hargreaves Lansdown pensions analyst Laith Khalaf says: “We now know what pension simplification was about. The Government wanted to wipe the slate clean and create its own grotesque labyrinth of pensions rules from scratch.”

Aifa director of policy Andrew Strange says: “This sends out entirely the wrong message and risks jeopardising the sensible savings plans of wealth creators.

“The decision has an impact on the self-employed, entrepreneurs and company directors who typically make irregular annual lump sum pension contributions. It is a worrying and complicated step from the Government.”

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