A tax raid on pension contributions made by wealthier people is being considered by the chancellor, George Osborne, according to reports, writes Harry O’Connor.
He is reported to be considering measures which may include lowering the maximum annual tax-exempt pension contribution, called the annual allowance, to £40,000 and may propose this in his Autumn Statement on Wednesday December 5.
George Osborne is said to be preparing to target the wealthy after prime minister, David Cameron, vetoed Liberal Democrat-backed plans for a ‘mansion tax’, a higher rate of council tax for luxury homes and apartments.
Soon after becoming chancellor, George Osborne cut the annual allowance from £255,000 to £50,000. If introduced, a new £40,000 threshold would raise around £600m, whilst a cut to £30,000 would raise £1.8bn.
If introduced, the cuts would hit middle-class savers who increase contributions to their pension pot later in life, the pensions industry warns, and could also accelerate the closure of defined benefit occupational pension schemes.
Although some may feel that £40,000 is still a great deal for one person to save in a year, many higher earners do accelerate contributions as they near retirement, making bigger contributions after their children have grown up, their mortgages are paid off and they face the reality of how much they need to boost their fund by to generate a decent retirement income.
With this, and the possible plans of the chancellor in mind, some pensions experts are advising people to start saving earlier rather than trying to ‘catch up' in good years.
They also advise that those wishing to make large contributions should act as soon as possible as there may be a delay before any new fiscal policy takes effect.
If you plan to make large contributions to your pension pot, make sure that you speak to an independent financial adviser first.
Harry O’Connor, Pearson Jones plc, Bank Chambers, 9 Kensington, Cockton Hill Road , Bishop Auckland, County Durham, DL14 6HX Tel: 01388 458 919.