Simplifying the pension system is crucial. Savers need to know how much they can salt away for their retirement, but the wholesale reform proposed by the last government left many scratching their heads.
So simply slashing the pension tax relief allowance to £50,000 is a good way to raise £4bn a year while leaving people absolutely clear about their limits and allowances. On top of that it will only affect 100,000 savers, most of whom earn six-figure salaries. So high-earners will be hit, but the bulk of workers will remain untouched by the changes next April.
Anything that reduces the incentive to save for retirement is bad news. But the £50,000 annual allowance should still be plenty for most people to build up a decent pension. Taking account of the ISA allowance of £10,200, it means people will be able to salt away more than £60,000 every year and get some tax advantages.
Indeed, one benefit of the planned cut in pensions relief could be that it makes some people start thinking about pensions as part of an overall savings strategy rather than just retirement planning. In the short term, high earners have six months to make the most of the existing £255,000 allowance. From April, they will have to look for other ways to save tax-efficiently, such as venture capital trusts. And, let's face it, high-earners have come off relatively lightly. The limit could have been cut to as little as £30,000, for instance. Worse – for higher-rate taxpayers at least – the relief could have been reduced to the standard 20 per cent tax rate.
Doing that would have gained many more billions for the Government and equalised pension saving for all. But that proved a step too far for the Coalition Government – as yet.Reuse content