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Modest earners ‘to be hit by pension tax relief cuts’

 

Plans to cut the annual and lifetime pensions tax allowances have attracted criticism from the pensions industry, with some experts warning that the changes could have an impact on individuals with final salary schemes.

 

In his 2012 Autumn Statement, Chancellor George Osborne announced that the annual allowance would be cut from £50,000 to £40,000 from 6 April 2014. The lifetime allowance will also be reduced from £1.5m £1.25m from this date.

 

The Chancellor predicted that just 1% of all people saving into pension schemes will be affected, yet experts have suggested that many relatively moderate earners with generous final salary pension schemes will incur tax bills as a result of the changes.

 

Commenting, Joanne Segars, chief executive of the National Association of Pensions Funds (NAPF) said: ‘The Chancellor is wrong to say that the changes will only affect those at the top of the wage tree. Middle managers in the public and private sectors will get caught in the net.

 

‘People in a final salary pension who have worked loyally for the same employer for years and then get a pay rise, or a promotion, could end up with a tax bill of several thousand pounds.

 

‘The self-employed and those nearing retirement desperately trying to 'catch up' by boosting their pension are also at risk,’ she added.

 

Some experts have also suggested that a previous Treasury document on the annual allowance made an ‘implied commitment’ not to reduce the allowance below the current level of £50,000 until at least 2016.

 

Ros Altmann, the director-general of Saga, said: ‘The Government implied that the annual allowance would remain at £50,000 until 2016.

 

‘Although the Chancellor can easily say that the public finances have worsened since 2010, he should acknowledge that he has broken an implied commitment if he does indeed announce a cut in the allowance in the Autumn Statement’.