UP TO 200,000 high earners could be hit by the pension tax relief cut – 100,000 more than the coalition has estimated.
The government yesterday announced it will slash the annual allowance on pensions tax relief from £255,000 to just £50,000.
While experts say this will affect less that one per cent of the overall number of pension contributors, high earners could lose out on thousands of pounds a year.
The lifetime allowance for total tax free pensions savings was also cut from the current £1.8m to £1.5m.
The Treasury expects 100,000 people – most of whom will be on salaries of £100,000 or more – will be affected, saving the public purse more than £4bn a year.
However, analysts at PwC warn that if inflation rises and the limits remain the same the number of people affected could double.
The changes will be introduced from April next year, when the government says it will give more details on its plans.
Pension savers on the margins of the tax relief threshold who are pushed over it by a substantial pay rise may be protected by a clause allowing them to offset the sum against the previous year, when the full allowance was not used.
The reduction was not as bad as some analysts feared, with figures as low as £30,000 or £40,000 a year being suggested.???
It also falls short of draconian plans drawn up by the Labour government, which planned
to save £4.5bn a year by hammering anyone earning more than £130,000.
But those selling a business or property and hoping to save by paying a lump sum into a pension scheme will now lose out.
Financial secretary to the Treasury Mark Hoban said: “We have abandoned the previous Government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.”
He added: “The government believes that our system is fair, will preserve incentives to save and will help UK businesses to attract and retain talent.”