THE CHANCELLOR has cut annual allowance for pensions to £40,000 and reduced the lifetime allowance to £1.25m as part of a drive to raise more tax revenue from the rich.
In his Autumn Statement, George Osborne said he would reduce the annual allowance from pensions to £40,000 from £50,000 and cut the liftetime allowance from £1.5m to £1.25m from 2014/15, Accountancy Age’s sister publication Professional Pensions reports.
The chancellor said the cut to the tax-free allowance would save the Treasury £1bn a year by 2017/18.
He said 98% of the population have less than a £1.25m pension pot and noted the median pot in the UK was £55,000 with 99% of savers’ annual contributions less than 40,000.
Osborne said the average annual contribution was less than £6,000.
The Autumn Statement said that, in 2010-11, tax relief for pension savings cost the government about £33bn, with more than half of this relief going to higher-rate taxpayers.
The Statement also highlighted that even with changes made to reduce the cost of pensions tax relief, the government was still likely to forgo about £31bn in tax revenues this year, rising to £35bn in 2015-16.
The chancellor said: “Now I know these tax measures will not be welcomed by all, but ways to reduce the deficit never are.”
The decision to reduce the annual allowance by a further £10,000 comes only two years after Osborne slashed the allowance from £255,000 to £50,000 (PP Online, 14 October 2010).
The industry has warned against further changes to the annual allowance. In their submissions for the Autumn Statement, both the Confederation of British Industry and the National Association of Pension Funds warned the chancellor not to touch pensions tax relief.
Industry commentators argued middle-income earners who top-up their pensions later in life could be hit by the change instead of higher-rate taxpayers.
Research from LCP suggested the number of FTSE250 executive directors being hit by a tax charge will rise from one in three to one in two as a result of the changes.
Report argues that the government must change the way it makes tax and budget decisions
Committee expresses concern about costs to businesses and April 2018 implementation date
Andrew Tyrie airs views on the Finance Bill, 'Making Tax Policy Better' report, and Brexit
Top 25 firm HW Fisher & Co has acquired London firm Rhodes & Rhodes