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Gov't to target pensions tax relief in squeeze on wealthy

by Alex Steger on Dec 03, 2012 at 07:46

Gov't to target pensions tax relief in squeeze on wealthy

Chancellor George Osborne is set to bow to pressure from the Liberal Democrats to target pensions tax relief in his Autumn Statement, according to reports.

The Sunday Times reported that Osborne was expected to reduce the annual allowance from £50,000 to £40,000 and was also considering cutting the level of pension tax relief higher earners can claim.

According to the Sunday Times the pensions move is part of a ‘deal’ with Lib Dem leader Nick Clegg who agreed to restrictions on the welfare budget on condition that high earners faced tax increases.

The Daily Mail reported that stamp duty on multi-million-pound home purchases could be increased. 

15 comments so far. Why not have your say?

alan from perth

Dec 03, 2012 at 09:04

So a high earner is possibly someone earning above 40k, well Mr Clegg if I were you I would be afraid, very afraid at the next election when your party will be wiped out-no more brown rice tank tops and sandles

Wouldnt it be nice if for once they actually encouraged people to actually save

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Anitaki

Dec 03, 2012 at 09:13

The Lib Dems will become extinct at the next election.

God help us. Cameron/Osborne vs. Millipede and Balls

Emigration now only option.

Flee at once

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Rich Murphy

Dec 03, 2012 at 09:26

@ alan - the £40,000 referred to is the proposed annual allowance level.. not salary.

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Ian Watson

Dec 03, 2012 at 09:26

£50k to £40k pa allowance is not a huge issue as most don't get anywhere near that . . . No,. I'm more interested that Osborne said yto Andrew Marr yesterday that everyone " must pay their fair share . . . "

Has anyone ever defined " Fair " . . . ?

Did I miss that ?

Probably not . . . and I'm sure whoever does will inevitably get it wrong as we all know, the "rich" will define it differently to " the people " . . . you know, the ones Ed Balls said he "knew" . . .

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sol trader

Dec 03, 2012 at 09:27

They often put these inflammatory statements out before a budget speech to add to our relief when they are not implemented and gloss over the sneaky changes they do apply. They might stop additional rate tax relief but I cannot see higer rate relief being stopped. They already have a £50k cap.

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Sascha K

Dec 03, 2012 at 09:29

@Sol trader: Good point.

"The Party is pleased to announce an increase in the chocolate ration to 20 grams."

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Yaya Toure's wallet

Dec 03, 2012 at 10:16

The current cap of £50,000 gross as a contributory limit means very high earners can utilise it but few others. Reducing this by £10,000 to £40,000 would affect so few it would raise so little. However the negative message that it sends would have a more pronounced and detrimental affect than any tax raised.

What this article appears to be highlighting however is something different - the abolition of higher rate tax relief - reduce it to 20% for all. This would affect the 'squeezed middle' much more. In particular all those members of final salary pensions on the cusp of, or in higher rate tax - teachers, nursing sisters and the like. That would really hit people in the pocket and add additional complexity to the PAYE system - in itself adding cost.

Perhaps announce it to go in two and half years time would have a better more positive short term impact as it becomes a use it or lose allowance. That would also allow the annual allowance to be abolished completely too in 2015, thus reducing complexity.

Perhaps then we can leave pensions alone completely for ten years and allow them to settle down. No thought not!

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Still Deciding

Dec 03, 2012 at 10:22

@Yaya

I'm sorry, but I struggle to define anyone who would be affected by the reduction in the higher rate tax relief as part of the 'squeezed middle'.

To be honest, it seems bizarre that higher rate tax relief was ever allowed.

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Yaya Toure's wallet

Dec 03, 2012 at 10:42

@Still Deciding

I agree with your second comment. However we are where we are and simply removing it from anyone who earns £42,500+ gross - that could be a family of three or four kids with a mortgage and all the usual expenses - would really eat into their disposable income. This would have a detrimental impact on their views of pensions and increase their monthly cost to maintain that status quo. I would therefore think it reasonable that pension contributions would drop for many hitting their own savings and future retirement income.

Someone earning this amount will have aspiration and no doubt works very hard already. The very definition of the squeezed middle. They are not rich and certainly not poor either.

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Keith Cobby

Dec 03, 2012 at 10:47

If tax relief on pensions is reduced to the basic rate who will want to invest in them over decades when withdrawals are also taxed.

This would mean the end for personal pensions and their replacement by ISAs.

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Still Deciding

Dec 03, 2012 at 10:58

@keith

I imagine that the same people who invest in them who currently don't receive higher rate income tax relief would continue to invest in them. Even without higher rate tax relief pensions can still be a very good proposition.

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Ex-employee

Dec 03, 2012 at 11:15

@Yaya

Good screenname, you must be massive! Thought he had a 'mare on Saturday, sitting deep and trying to knock long balls over the top.. it just didn't work at all.

Now then, where was I?... Oh yes, pensions.......

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Ian Watson

Dec 03, 2012 at 11:35

The question is . . . what is the % tax relief threshold below which :

1. lack of access

2. suspicion of Pension providers' profiteering and

3. concern over future Government meddling

override the perceived tax benefits of the pensions wrapper ?

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Yaya Toure's wallet

Dec 03, 2012 at 11:39

@Ex Employee

He is quite obviously saving himself for Sunday! He will be massive that day.

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Asim Macci

Dec 03, 2012 at 12:43

Saving for retirement should be a priority for everyone! One day we will all stop working and therefore need a backup plan! If the government reduces the annual pension allowance and reduces the tax relief on pensions, it would only affect a MINORITY of the population.

Also if someone is able to save £40k or £50k gross into a pension, then surely they have other assets from which they are able to benefit from. Therefore a reduction in tax relief or annual allowance will not really affect them anyways!

I do not see what all the fuss is about as most people will be unaffected. To me this is more of a sales angle for financial advisers than an problem to peoples financial planning

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