The reductions … and why they are being brought in

Q What are the changes to pension tax relief and when do they come in?

A From April, new rules will cut the amount high earners can save into their pensions each year while still attracting tax relief. The change is designed to gradually reduce the amount people with incomes between £150,000 and £210,000 can save, scaling it down from £40,000 – which is the annual limit that applies to everyone – to £10,000.

Q What other changes are there?

A The pensions “lifetime allowance”, the maximum value that your pension is allowed to reach at any stage, is also falling, from £1.25m to £1m in April.

Q How many people will be affected?

A HM Revenue and Customs estimates there are 343,000 individuals with incomes above £150,000 who might therefore be caught. Of these, at least 137,000 fall into the income band where they will suffer some reduction to their annual allowance, although possibly not a complete reduction to £10,000.

Q Why is the Government reducing the tax relief ?

A It was introduced to pay for another key Conservative policy, the new “family home allowance”, an extension of the inheritance tax allowance. According to HMRC, the cost of tax relief on contributions to both work and personal pensions has increased from £17.6bn in 2001-02 to around £35bn today.

Q What do critics say? A Employers claim the new rules are causing “unprecedented chaos”. They say it is impossible for them to know an employee’s total income in advance of the end of the tax year, because it includes variable payments such as dividends, bank interest, rental income, bonuses and numerous other income streams.