Hargreaves Lansdown has partially backed government proposals to overhaul the
pensions tax regime, but also suggested further adjustments.
The FTSE 250 investment company said government plans to reduce the Annual
Allowance from £255,000 to around £40,000 and to reinstate marginal rate tax
relief were “infinitely better” than Labour’s attempt to restrict pension tax
relief to just 20% for higher earners.
But the government risks undermining the beneficial impact of this reform by
restricting 50% tax payers to 40% pension tax relief, Hargreaves Lansdown said.
“It would be better to have an even lower Annual Allowance – £35,000 for
example – and full marginal rate tax relief (including 50%) than to have a
higher Annual Allowance and tax relief capped at 40%.”
The average contribution to a personal pension is only around £2,020 a year,
so an Annual Allowance of £35,000 would still be more than enough for most
Hargreaves Lansdown was concerned that any difference between individual
income tax rates and pension tax relief rates created a deterrent to pension
planning which would affect pension investors across the board.
Tom McPhail, Head of Pensions Research said: “Simplicity is the key, without
that all the other pension reforms will founder on the rocks of investor
confusion and disengagement.”
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