Pensions minister Ros Altmann said last night that the government is considering ending special pension tax relief for high earners.
The government is currently carrying out a consultation into whether there is a case for reforming pensions tax relief. Currently top-rate taxpayers receive 20 per cent tax relief on their pensions, and can claim back up to a further 25 per cent through their tax return.
Altmann told City A.M.: “It’s a completely open consultation. No decision has been made. [Capping tax breaks] is just one of the options on the table.”
Altmann said the status quo could remain in place as a result.
The consultation is aiming to find the “optimal” way of incentivising long-term savings, she said, adding: “Clearly tax relief expenditure is high so it’s right for the government to question whether the money is being well spent.”
In the Summer Budget earlier this month, chancellor George Osborne announced that the annual allowance for additional rate taxpayers would be tapered down to a minimum of £10,000. Under the reforms, for every £2 of income an individual has over £150,000, their annual allowance will be reduced by £1 until it has fallen to £10,000. These changes will apply to those earning £210,000 or more.
This new limit on the amount of tax relieved pension saving an individual is allowed will come into force next April.