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Changes
to pensions tax relief for higher earners could be
counterproductive, it has been claimed.
The
Budget announced that, as from April 2011, pension contributions tax
relief for those earning more than £150,000 will be cut so that it
gradually tapers to 20 per cent at £180,000.
The
measure has been criticised by some members of the insurance
industry for removing an incentive to save and introducing an
element of uncertainty into the savings system.
Trevor
Matthews, the chief executive of Friends Provident, argued that
targeting a particular group of savers now may mean that more people
could be affected in the future.
He
said: “Now that contract has been broken, and if it can be broken
for one segment of savers now, it can be broken for others.”
The
decision to change the pensions tax relief system for higher earners
has also attracted concerns that it is unfair to the self-employed,
in particular the rule which can restrict how much money is paid
into pension funds.
To
prepare for the new tax relief regime, and to prevent higher earners
from upping their pension contributions before the reduced relief
comes into effect, a special annual allowance was introduced as from
22 April 2009.
The
allowance is £20,000 and is the limit on the amount of additional
pensions savings for which full relief at the higher rate of tax can
be given. The special annual allowance charge will only apply to
someone with an annual income of £150,000 or more in any tax year
from 2007/08 who increases the level of their pension savings on or
after 22 April 2009 beyond their normal pension savings.
Normal
savings pattern are those taken to be made on a quarterly or an even
more frequent basis.
But
it has been argued that the anti-forestalling rule, as it is known,
could be unfair to self-employed people who tend to make a large
one-off pensions payment each year after they know how much they
have earned.
Ian
Menzies-Conacher of the Chartered Institute of Taxation argued it
was logical to say contributions must be on a regular basis but not
to say a regular basis cannot be annual.
The
Treasury has promised to consult on the rule to ensure that people
who save less regularly are not treated unfairly. |
