Commenting on the announcement Barnett Waddingham senior consultant Malcolm McLean said:
“These further proposed reductions in pension tax allowances from Labour are bad news for pension savers across the board.
"They come on top of a series of cuts to the allowances already implemented by the present government and will impact not only the older generation but also many younger people who are attempting to build up provision for their later years.
“At a time when strenuous efforts are being made through automatic enrolment and other measures to stimulate and energise saving into a private pension it is very disappointing to hear the Labour leader announcing such a retrograde step.
“Many commentators are already of the opinion that a Lifetime Allowance is superfluous and unfair in that it not only restricts the level of tax relief that can be given but also imposes a 55% surcharge on those who perhaps through prudent management of their money and by securing good investment returns have unwittingly exceeded the limit. This further reduction simply adds fuel to the flames of that particular argument. Also it is worth noting that a pot of £1m might provide a pension of around £30k and if the allowances aren’t indexed, inflation will result in the real value of the pension pot people can accrue falling further over time.
“Similarly the Annual Allowance is now at a level which could severely restrict people perhaps in middle life who have been unable for whatever reason to start a pension plan at a younger age and now need to pay larger sums into their pension plans. This impacts on both defined contribution and defined benefit (final salary) plans and in connection with the latter type of pension arrangement could materially increase the tax charge on someone who in a particular year receives a salary increase on a promotion which increases the assumed value of the extra pension accrued in the year and takes it notionally over the limit.
“The proposed restriction on tax relief for the highest earners is a repeat of a previous announcement from Labour. Whatever its justification it creates a peculiar imbalance between standard rate taxpayers (20%), the next tier of earnings up to 40% and then the above £150,000 level back down to 20%. What the repercussions of that may be remain to be seen.
“Overall this is short-sighted policy making by Labour. Successive cuts in the annual and lifetime allowances will erode the ability of Britons to provide for their retirement. This latest cuts could affect those on mid or variable incomes e.g. teachers, doctors, self-employed
“The next government should focus on getting people to save more, and increase the size of the average pension pot, to ensure people have a comfortable retirement and do not have to fall back on the state”.
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