Trowers & Hamlins comments on Autumn Statement
05 Dec, 2012
Today’s Autumn Statement announced the government’s intention to reduce tax relief available to retirement savings. Martin McFall (pictured), pensions partner at Trowers & Hamlins, comments: “In October, the Government rolled out, with much fanfare, its flagship auto-enrolment pensions programme, which is designed to incentivise people to save for retirement. Celebrity employers from Dragons’ Den and The Apprentice featured in a high profile TV ad campaign to endorse and raise awareness and reassure the public with the catchphrase ‘I’m in’.
“However, reductions to the annual allowance and lifetime allowance for pensions announced by the chancellor in the Autumn Statement will reduce tax relief available to retirement savings from 2014. This will prove a disincentive to using pensions as a means of providing an income in retirement. The Government’s pension policy and taxation policy appear to be sending out contradictory and mixed messages, and as a result, higher rate taxpayers may look to other forms of retirement saving declaring ‘I’m out’.”
Diane Preston, pensions partner at Trowers & Hamlins LLP, adds: “The Chancellor has announced that there will be a £1 billion tax rise for high earners with effect from the tax year 2014/2015. This will come as a result of plans to reduce the annual allowance for pensions contributions from its current level of £50,000 p.a. to £40,000 and the lifetime allowance from £1.5 million to £1.25 million.
“Criticism of the reduction in the annual allowance decision will no doubt be rife and will come primarily from providers of SIPPs and high earners. This is a contradictory message to the Government’s new auto-enrolment programme. However, the new auto-enrolment programme is directed towards the less well paid and those who don’t already have a pension, and these people are unlikely to be affected by this cut to tax relief on pension contributions. Only 1% of pension scheme members currently make annual payments totalling more than £40,000.
“Reduction of the lifetime allowance will again primarily affect high earners. 98% of individuals approaching retirement have a pension pot worth less than £1.25 million so this change will affect only the wealthy few.”