Aifa has written to the Chancellor urging against a possible reduction in higher-rate pension tax relief in next week’s Budget, saying it would undermine the concept that pension saving is not taxed twice.
The trade body’s letter to George Osborne comes amid reports that ministers are considering reducing the annual allowance for tax-privileged pension saving from £50,000 to £40,000, or potentially getting rid of higher-rate tax relief altogether.
The letter says: “We are concerned a reduction in tax relief for pensions will discourage individuals from investing in their pension fund, thereby reducing saving for retirement when increasing longevity means that people need greater encouragement to save.
“It would undermine the Government’s policies of encouraging personal financial responsibility and reducing the burden on the welfare state. Furthermore, such a step would further complicate the already hard-to-navigate pension regulatory framework.”
Aifa reminds Osborne the Conservatives promised to support saving through the tax system before they came to power, and of their pledge that they would look to avoid the uncertainty caused by “unpredictable and rushed changes to the tax system”.
The letter adds: “Although we recognise the argument that led to last year’s reduction of the annual allowance from £255,000 to £50,000, we are strongly opposed to this latest possible change.
“This measure will affect a vast number of people who are making sensible steps to ensure that they have adequate retirement savings. It would undermine the principle that pension saving depends on – that income is not taxed twice.
“We believe the effect of such a measure would be to reduce contributions to pensions, which would be a bad outcome for the future of society and the economy.”
Aifa’s letter follows wider industry calls to avoid further reforms to pension tax relief.
Last week, The Times newspaper carried a letter signed by industry bodies such as the Association of British Insurers and the Institute of Directors warning Osborne against any possible reform of higher-rate pension tax relief.