PENSIONS TAX RAID

Middle-class workers face being stripped of £100 a month with new cuts to tax breaks

MIDDLE-CLASS workers face having £100 stripped from their take-home pay to fund a Government tax raid on pensions.

Officials are considering cuts to savers’ pension tax breaks and may act in the March Budget.

Under the plans, five million higher- rate taxpayers could lose tax relief and would have to pay tax on money they put into a pension pot.

Employers could be forced to remove this money directly from staff salaries.

Experts say the only way savers could avoid losing take-home pay is by cutting the amount they put into company pensions. Under pension rules, many firms are unable to reduce the amount going into staff pensions without permission, so it will fall to workers to tell bosses.

Anyone on more than £42,385 and saving into a stockmarket-linked workplace scheme would be affected.

Someone on a £50,000 salary would see take-home pay fall by £1,350 a year or £112.50 a month.

Experts warned millions could be left

unaware of the pay cut and fail to reduce their savings.

Jackie Wells of the Pensions and Lifetime Savings Association (PLSA), which represents 1,300 schemes, said: ‘This will be a real shock to savers. They will be faced with a stark choice of less in their pension or less in their take-home pay.’

Jon Greer of wealth manager Old Mutual said: ‘It’s going to be difficult for people to understand where this deduction to their take-home pay has come from.’

The PLSA predicted workers would cut pension contributions by as much as £1billion a year.

The plans are part of efforts by Chancellor George Osborne to cut the £34.3billion cost of pensions tax relief.

Currently, pension savers receive a refund of income tax they have paid into their pension, at their rate of 0 per cent, 40 per cent or 45 per cent. It means it costs a basicrate taxpayer 80p to put £1 in. The 0p is the refund that goes straight into the pot. It costs a higher-rate taxpayer 60p and a top-rate taxpayer only 55p.

But Government plans involve replacing this system with a flat rate of tax relief. All savers would effectively get a fixed tax of rebate between 0 and 30 per cent of the money going in. This could make basic-rate taxpayers better off, but higherrate taxpayers would lose out.

According to insurer Aegon, a worker on £50,000 contributing 6 per cent to a pension each month, with a 1 per cent contribution f rom t heir employer, would be £1,350 worse off over a year.

A Treasury spokesman said: ‘We are considering all options and will respond at the Budget.’