Middle and high income earners could turn their backs on pensions in favour of investing in property should chancellor George Osborne make further changes to the lifetime allowance at the Budget later this week, research out today has found.
The study by Zurich found that a quarter (25 per cent) of all Britons would funnel their savings into properties instead of pension pots should Osborne lower the amount that people can put into their pensions tax-free.
"A fresh assault on the lifetime allowance would undermine the status of pensions as the best way of saving for retirement," said Iain Mills, operational taxes director at Zurich UK Life.
Should the cap for lifetime allowance – which will drop from £1.25m to £1m in April 2016 – fall below the £1m mark, over a third (38 per cent) of those earning between £100,000 and £149,999 would start to pour their savings into property, as would 35 per cent of those taking home between £70,000 and £99,999 and 31 per cent of those on a salary between £60,000 and £69,000.
"Any decision to lower the lifetime cap in the Budget could ultimately drive disillusioned middle and higher earners away from pensions, and pile more pressure on the property market," Mills continued. "Confidence in pensions is being eroded by successive governments tinkering with the pension rules. Instead of piecemeal change, we need a long-term sustainable solution that incentivises people on all incomes to save, and gives them the certainty they need to plan for retirement."
In last year's Autumn Statement, the chancellor said he would announce the outcome of a Treasury consultation on pensions tax relief at the next Budget.
However, less than a fortnight ago, Osborne backtracked on these plans, with an ally saying that the chancellor had reached the conclusion that "now isn’t the right time – with uncertainty in the global economy and reforms such as auto-enrolment still bedding in – to turn things on their head".