GOVERNMENT plans to limit tax-free pension saving could hit a wide swathe of society, not just the wealthiest, industry experts warned.
The maximum amount a saver can put into a pension over their life, without facing tax, will be sliced from £1.5m to £1.25m in 2014-5, having already been cut from £1.8m. And the annual tax -free allowance will be slashed from £50,000 to £40,000 – after being cut from £255,000 in the 2010 emergency budget. Together these measures will bring in £1bn and only hit the wealthiest, the chancellor claimed. Just two per cent of people close to retiring have a pension pot worth more than £1.25m, he said, and only one per cent make annual contributions more than £40,000. But Raj Mody at PwC said those impacted could number in the hundreds of thousands. He also warned that the scheme would penalise primarily private sector defined contribution pensions – which work on market annuity rates – more than primarily public sector defined benefit pensions – which use an HMRC formula.
The government also U-turned on its cut in the amount savers can withdraw from their pension tax free. Having been cut to 100 per cent in the 2011 Finance Act, the limit will return to its previous 120 per cent of a government-calculated level linked to potential annuities.