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Coalition to consider cuts to higher-rate pensions tax relief
Higher-rate tax relief on pension savings could be halved to 20%, under plans reportedly being considered by the Government.
The Treasury chief secretary, Danny Alexander, has suggested that wealthy individuals are receiving overly-generous tax relief – a concession which he says the Government can no longer afford.
For every £1 currently saved in a pension by a higher-rate taxpayer, the Government contributes another 40p. However, this may be cut to 20p, in line with the basic rate of income tax.
According to Mr Alexander, the move would net the Treasury an estimated £7 billion and could help fund the Liberal Democrats’ ambition to exempt those receiving the national minimum wage from paying income tax.
‘If you look at the amount of money that we spend on pensions tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate,’ Mr Alexander told The Daily Telegraph.
‘It’s very important that in these difficult times that we are asking those with the broadest shoulders to bear the greatest share of the burden. That is very important practically and philosophically.’
The plans are likely to prove controversial, particularly in view of the recent changes to the pensions annual allowance.
The annual allowance for tax-privileged pension saving was reduced from £255,000 to £50,000 in April last year, while the lifetime allowance on money that can be accrued in a pension fund and still receive tax relief, is set to fall from £1.8 million to £1.5 million from April 2012.
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