Big pension savers face new curbs
PENSION savers who put aside large sums for retirement are set to be hit by new plans to sharply reduce the amount of tax-free contributions they can make each year – regardless of how much they earn.
Yesterday, the government outlined plans to slash the amount a pension saver can put aside tax free each year from £255,000 to around £40,000, but said it would also scrap Labour plans for a higher earner pensions tax.
Labour was planning to restrict higher-rate tax relief on pensions for those earning more than £130,000 gross from April 2011. Under the coalition’s new plans, those earners will still be entitled to tax relief – but only up to the new, lower threshold.
The move will affect pension savers planning to put aside more than £40,000 in any given year – even if they intend to do so as a one-off.
Pensions experts welcomed the proposals for being much simpler than those planned by the previous administration, but warned that more people would be caught under the net.
Raj Mody, pensions partner and chief actuary at Pricewaterhouse-Coopers, said: “People looking to save a significant sum for their pension, whether regularly or as a one-off, will now have to reconsider pension planning regardless of their earnings level”.
Mody added that the impact would be greater for final salary scheme members – with twice as many likely to be caught.