Britain could raise up to £1.5bn by limiting tax relief on the very largest personal pensions – those built on lifetime savings of more than £1m. This would affect only very wealthy savers and seems necessary in these straitened times, when deep welfare cuts are underway. The money saved from pension tax relief could help people on lower incomes fund extra childcare that allows them to work more, helping them earn a greater share of national growth. This option was recommended last month by the Commission on Living Standards, whose members included the chairman of Lloyds Bank and the managing director of British Gas. The commission agreed that such generous relief is no longer fair or efficient in an economy where the poorest are falling behind and where every penny of public spending must be justified.
Vidhya Alakeson is deputy chief executive of the Resolution Foundation.
Egged on by the “wealth tax” enthusiasts in the coalition, George Osborne is mulling a further reduction in the annual pension contribution allowance from £50,000 to £40,000. Should he do so, he will reduce one of the few legitimate avenues for easing the burden of what are currently highly punitive income tax rates. While £50,000 per annum is undoubtedly a sizeable sum for most, the reality is that many middle class professionals have to make sizeable contributions in the years running up to retirement, simply to catch up after years of funding children through education and paying off mortgages. Pulling the door even tighter will do little to encourage saving at a time when investing in pensions is already at its lowest level for a decade. Constantly changing the rules simply undermines confidence in the pension system.
Jason Hollands is managing director at Bestinvest.