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Calls for government to defer annual allowance cut for higher earners

Kit Klarenberg
Written By:
Kit Klarenberg

The government should postpone plans to curb pensions tax relief for higher earners, according to the head of retirement at Fidelity. 

Commenting ahead of next week’s Autumn Statement, Richard Parkin said George Osborne should defer measures to reduce the annual allowance – the amount you can pay into your pension each year tax free – for people earning more than £150,000 from April 2016.

“This policy doesn’t just impact city fat cats but also hard working business people and professional public servants such as GPs and surgeons,” said Parkin.

“These rules are complex and have introduced significant uncertainty and additional costs not only for the individuals affected but also their employers and pension plan trustees. We know employers are getting increasingly weary of continuous changes to pensions – automatic enrolment, pension freedom and continual changes to tax incentives. It is not reasonable to expect they will stay committed to sponsoring and operating good quality pension schemes if they are forced to endure and pay for constant change.”

In his July Budget, Osborne announced that the annual allowance will be progressively reduced from £40,000 to £10,000 for anyone earning between £150,000 and £210,000.

The Institute for Fiscal Studies said the new rules would affect around 300,000 individuals.

Parkin added: “The Chancellor has flagged he will be announcing further changes to incentives in the 2016 Budget – expect these to impact high earners, to be relatively radical in nature and to be effective within a relatively short time frame – perhaps as early as April 2017. It therefore seems unreasonable to expect employers and pension plan trustees to introduce and operate special arrangements for high earners will almost certainly be changed within 12 months and probably won’t generate significant savings for government in that time. Employer sponsorship is the rock on which the UK’s pension provision is built. We cannot keep chipping away at it and expect the system to not fall down.

“It is for this reason we call on the Government to defer these changes in the Autumn Statement and present a clear direction for overall reform of the system of tax-incentives in the next budget.”