From April 11 pension contributions for people who earn over £150,000 will not receive tax relief at 40 per cent. Instead it will be tapered down to 20 per cent for earnings over £180,000. The change will affect 92 per cent of higher rate taxpayers, impacting 291,000 people.
Rachel Vahey, head of pensions development at Aegon says: “This undermines the A-day agreement which was designed to promote long-term pension saving. That major overhaul of the pensions tax rule was meant to last 30 years rather than three years.
“We can’t afford a vicious circle of less engagement with pensions leading to increased temptation for politicians to cut their value. The more the Government alters the rules the less trust people will have in pension saving going forward.”
Clive Grimley, partner at Barnett Waddingham says: “This is Gordon Brown’s second tax raid on pensions, the last being the removal of advance corporation tax relief; this change seems to be entirely contrary to the tax simplification of pensions, which was only introduced with effect from April 2006.”
Andrew Tully, senior pensions policy manager at Standard Life, says:
“This creates a worrying precedent by breaking the long-standing principle that an individual receives tax relief on their pension contributions at their highest marginal rate. The Government must provide assurances that it will not further erode pensions tax relief in future.”
Raj Mody, pensions partner and chief actuary at PricewaterhouseCoopers says: “Careful consideration will need to be given to how this proposal will affect the occasional high-earner and how it will interact with the lifetime allowance. Those people who think they may occasionally breach the £150,000 threshold will need to give particular consideration to the timing of their pensions contributions – it may be counterintuitive but a good year earnings-wise under the proposed regime may not be the most tax-efficient time to pay a lump sum into retirement savings.
Maggie Craig, director of life and savings at the ABI says: “We are concerned that it sends a worrying message to pension savers that the Government is now breaking its contract on tax relief. Tax relief is there for a reason – it compensates responsible people who agree to defer some income by locking pension savings away until they retire. That principle was enshrined by Lord Turner in his Government-backed report on pensions in 2006.
Marcus Hurd, Head of corporate solutions, Aon Consulting says: “The legislation could fail to generate any tax revenues as those earning above £150k can circumvent this through salary sacrifice. If this were to happen the Government would also lose out on national insurance contributions, thus actually ending up losing revenue.”
Adrian Boulding, wealth policy director at Legal & General says: “The pension industry has earned a well deserved victory today in successfully heading off any plans that the Government were considering to scrap higher rate tax relief on pension contributions.