£8bn pension raid on middle-classes

MIDDLE-CLASS pension savers could be robbed of £8billion a year under dramatic plans being pored over by government officials.

The Treasury is considering a move to pare back tax breaks on retirement funds in the Budget next month as the Chancellor tries to boost the public finances in the face of the struggling global economy.

In the first indication of the size of the potential raid, the Daily Mail has learnt that savers could lose a quarter of the perks they are given for saving into a fund.

Officials have held lengthy discussions about reducing the £34.3billion cost of tax relief by as much as a quarter – £8billion.

Currently, all savers get a full income tax refund of up to 45 per cent when they pay into a pension, meaning they pay no tax on the money put aside.

Under the plans being discussed, anyone earning more than £42,385 would get only a partial refund.

However, the Treasury insists it has yet to make a decision on which course of action to take.

The radical plans were drawn up by former government adviser and investment banker, Michael Johnson, who has had a series of meetings with the Treasury in the last two months. He said: ‘When it comes to pensions tax relief now is the time to act decisively. If the Chancellor is to reform the matter in which he incentivises saving, he should focus on simplification, while also securing a substantial saving to the Exchequer to help address the deficit.’ Last night experts warned that an £8billion tax grab would deal a crushing blow to the middle-classes.

Tom McPhail, head of retirement policy at investment firm Hargreaves Lansdown, said: ‘This shows for the first time the true scale of the Chancellor’s ambitions when it comes to making savings from pensions. The danger is that this will hit workers earning between £45,000 and £50,000 year hardest and could put them off saving for retirement.

‘George Osborne undoubtedly needs a lot of money but he has to make sure that he does not wreck savers’ retirements as a result.’ Jason Hollands, director at advice firm Tilney Bestinvest, said: ‘Cutting tax relief seems to be a soft target for the Chancellor who might view it as a silver bullet that will boost the economy. But in reality it will be stealth tax on Middle England.’

Money Mail is campaigning against the tax raid. A Treasury spokesman said: ‘We have not decided on whether or how to reform the system and are considering all options, including retaining the current system. This consultation is now closed and we will respond at the Budget.’