Pensions - Articles - Cutting pension allowance does not hit middle income earners

 Sean McCann, chartered financial planner at NFU Mutual, said: “We could see drastic simplification of pension tax relief in the next Budget. The Treasury’s dilemma is it has to raise revenue without raising taxes. A cut to the amount people can pay into their pension seems increasingly likely.

 “Cutting the annual pension allowance from £40,000 a year to £20,000 wouldn’t affect most people, but would save the Government significant sums in tax relief. We could also see the option to carry forward unused relief from previous years scrapped. Much in the same way as with ISAs, savers will have to use it or lose it each tax year.

 “In a move to simplify the rules, the Treasury may also do away with the complex rules which mean that those with income of more than £150,000 have their annual pension allowance tapered down to as little as £10,000 when their income reaches £210,000.

 “The spoonful of sugar that would help this medicine go down is making pensions simpler and easier to understand.

 “All this speculation will undoubtedly see more high earners trying to make the most out of their pension contributions while they still can."

 Example comparing the relief for higher rate taxpayers

 Current system:

 A maximum £40,000 contribution with 40% relief = cost to the Treasury of £16,000

 Reduced annual allowance:

 A maximum £20,000 with 40% relief = cost to the Treasury of £8,000