Pension saving cuts threat
DRASTICALLY lower limits on pension savings are being considered by the Government.
Treasury officials are examining cutting the lifetime allowance to £750,000 and reducing the amount that can be put away each year.
A taskforce has been charged with reducing the £34billion annual cost of pension perks. On the table are plans to restrict annual contributions to only £10,000, compared with £40,000 at present.
Experts warn such a ‘terrifying’ move would hit millions of prudent workers on modest salaries. Those who break the new limits would be hit with a tax charge of 55 per cent.
Malcolm McLean, of actuaries Barnett Waddingham, said: ‘The Government says these changes are all about simplifying the system but in fact it is about bringing in more money. If this is introduced it will hit many more workers, some of them on ordinary salaries.’
The Government has launched a wide-ranging consultation into cutting pension tax relief. Last week Money Mail launched a major campaign, Save our Pensions, to get the Chancellor to think again.
Civil servants are examining a range of options, including a flat rate of tax relief of between 20 per cent and 33 per cent. This would mean every £1 paid into a pension costs a higher rate tax payer more than a basic rate tax payer.
Another option involves replacing pensions with something like an Isa, where contributions are paid from taxed income but money in retirement is tax free. The Mail can reveal the Treasury is also considering a two-pronged approach. Insiders say up to eight million people with final salary pensions would have the amount they could put away over a lifetime reduced from s to anything between £750,000 and £800,000.
It is understood the Treasury is also considering creating a separate system for workers in private stock market-linked schemes. These will no longer have curbs on the amount that can put in, but there could be onerous restrictions on the amount that can contributed to a nest egg in a single year.
A Treasury spokesman said: ‘The Government launched a wide-ranging consultation on the system of pensions tax relief last summer.’ He added: ‘We’re considering the responses and will respond at the Budget.’