ANY move in the Autumn Statement to cut tax relief on pensions contributions or tax the lump sum paid on retirement could hurt savers on modest incomes and put younger workers off saving altogether, pensions analysts warned yesterday.
The allowance eligible for relief used to rise with inflation, hitting £255,000 in 2010-11. But that was slashed to £50,000 for last year, and could be chopped again to £25,000 in the Statement on Wednesday.
George Osborne yesterday said that cut in reliefs was one way he has made the rich pay to cut the deficit so far.
“The richest will have to bear their fair share, and they will pay more than they are paying at the moment,” he told the BBC’s Andrew Marr.
But although he ruled out a mansion tax, he would not confirm or deny rumours of a new pension raid.
“You will have to wait until the Autumn Statement on Wednesday,” the chancellor insisted.
Actuaries warned another change to the regime would damage confidence in the pensions system
“It is hard enough already to inspire confidence in pensions saving framework, particularly for younger workers, without this constant tinkering around,” said Raj Mody from PwC.
“And the direct impact is surprisingly wide. A £25,000 allowance might sound quite high, but it is easier than you might think to trigger that, particularly in a defined benefit scheme where the sponsoring company is paying in as well. Such a cap would start to affect even middle managers.”