Savers rush to top up pensions

MIDDLE-class savers are rushing to top up their pensions over fears that the Chancellor is to slash generous perks.

George Osborne is considering plans to axe tax breaks worth £34billion a year, designed to encourage saving for retirement. In a blow to millions of savers, one expert said the ‘game is up’ for higher-rate tax relief.

Basic-rate taxpayers receive a £20 top-up from the Government for every £80 they pay into a pension. higher rate taxpayers receive £40 for every £60, while top-rate taxpayers receive a £45 for every £55.

The cost of providing these perks has spiralled as people work longer and pay more into private pensions, and employers shut down expensive final-salary schemes. The Government is mulling over whether to slash the tax breaks as it attempts to plug the nation’s £90billion annual deficit.

The most radical option is transforming pensions into a type of retirement Isa in which savers would not receive tax relief on pension contributions. Instead, they would not pay tax on their retirement income.

This has met fierce resistance from the pensions industry, with one expert warning it would lead to the collapse of the system.

Another option is flat-rate tax relief. This would be a boost for basic-rate taxpayers, but a blow to five million higher-rate and top-rate taxpayers who would gain less. The review of tax relief was announced in July – and the consultation ends on Wednesday. The Government is likely to publish its proposals this year and experts believe reforms could be introduced by April 2017.

According to pensions and investment broker hargreaves Lansdown, higher earners are not taking any chances.

It said pension contributions from higher and top-rate taxpayers have soared 61 per cent since July. Contributions this tax year have rocketed 120 per cent in 12 months.

Tom McPhail, head of pension research, said: ‘The Chancellor needs to balance the books and where else is he going to go but to the people who have the most money?’