Pension raid to hit young high-earners

HIGH-EARNING savers in their 20s and 30s will lose up to £161,263 in their lifetime as a result of a Government tax raid on pensions, Tele

graph analysis reveals today. A “Robin Hood”-style pensions revolution expected in George Osborne’s March Budget would hit retirement funds of young professionals such as lawyers, doctors and accountants eight times harder than those of their parents’ generation.

Sources close to the Government say it will introduce a “flat rate” of tax relief to replace the current system in which taxpayers receive relief at the highest marginal rate of tax they pay. The rate is expected to be between 20 and 33 per cent – far lower than the 40 per cent higher rate taxpayers currently receive on contributions.

Calculations by Hargreaves Lansdown, a pensions firm, show that a 25year-old higher rate taxpayer saving £250 a month will lose up to £161,263 from their pension between now and state pension age.

An affluent 55-year-old, who is likely to have already built up most of their pension under the current system, can expect to be up to £21,461 worse off. The news comes weeks after the Department for Work and Pensions revealed that 16 million people under the age of 43 would be worse off as a result of the new state pension, and will fuel fears that young people’s financial security could be heading for a crisis.

Chris Noon, an actuary at pensions specialists Hymans Robertson, warned the new system would have a “Robin Hood” effect which would most hurt those earning £40,000 to £70,000. He said: “Middle earners struggle to replace a decent chunk of their salaries in retirement more than any other group, and this loss will make life even harder for them.”

Ashley Seager, co-founder at the Intergenerational Foundation think tank, said: “This is another example of the costs of adjusting to an ageing society falling mainly on young people. In this case the aspirational young which the country so badly needs.

“At the same time those already over the drawbridge in comfortable, risk-free retirement are not asked to make a contribution while knowing that generations coming after them will be much worse off.”