Currently, the amount accrued to a pension in any given year is multiplied by 10 to determine whether it exceeds the annual allowance, which at present is £245,000, and tax is payable.
But the Government is set to change this multiple to an age-related factor, with those closer to retirement subject to a higher multiple and liable to more tax. The consultation does not detail which ages will be subject to which multiple but gives an example of a multiple of 23. Standard Life warns that people aged over 50 will be in the firing line.
The Government claims the calculation is more accurate and says it will bring in up to £3bn a year in additional revenue but Standard Life head of pensions policy John Lawson says this is a massive underestimate.
He says: “The Government says they will earn around £3bn from this change but at this rate they will cover the full fiscal deficit. The enormity of the tax charges will be horrendous. This is a sneaky change.”
The move is expected to particularly hit medical professionals in the public sector, such as doctors and dentists.
Lawson says: “The tax charges will be enormous across both sectors but public sector workers will be worse hit because they do not have pension managers.
“In the private sector, employee pension managers will speak to higher-earners and give them the option of taking a bonus or cash instead. Public sector workers will not get that option. Nobody is going to tell these people until the tax demand drops through the letterbox.”