Sunday 25 November 2012 11:27 pm

Think-tank supports controversial raid on pensions tax relief

AN INFLUENTIAL think-tank has backed the chancellor’s plans to raid high-earning savers’ pensions tax relief in next week’s Autumn Statement. Centre for Policy Studies research fellow Michael Johnson said in a paper out today that the current incentives to save for a pension are “crude and mis-directed, primarily towards the wealthy”. George Osborne previously lowered the ceiling for annual pension contributions eligible for relief from £255,000 to £50,000 in 2010. He is believed to have put forward plans for a further reduction to the rest of the cabinet. The proposal could help balance out the £10bn cut to the annual welfare budget set out at the Conservative conference last month. Pensions expert Johnson renewed his call for a combined limit for tax-free pension and ISA savings, with a cap somewhere between £30,000 and £40,000, a move that would save an estimated £600m to £1.8bn a year. He argued that since higher earners are in the habit of saving anyway, the coalition’s focus should be on encouraging younger people and those on low wages to save for their future, therefore lowering the eventual burden on the state. He also called for Osborne to axe higher rate relief, possibly replacing it with a flat income tax relief rate. Interest groups such as Saga have also called for greater flexibility for savers, for example making ISAs an attractive alternative to locking every penny into a pension. But others, including Baker Tilly, have warned that the planned tax relief cut might dissuade those with above-average salaries from saving.