Financial Secretary to the Treasury announces changes to restricting pensions tax relief
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Issued in 14 October 2010 - HM Treasury
Financial Secretary to the Treasury, Mark Hoban MP, announced
today that the annual allowance for tax-privileged pension saving will
be reduced from £255,000 to £50,000, and the lifetime allowance will be
reduced from £1.8 million to £1.5 million. This will replace the
complex proposal legislated for by the last Government in the Finance
This measure will raise £4 billion per annum in steady state
and will help reduce the record Budget deficit that this Government
inherited. It will be targeted at those who make the most significant
pension savings. An annual allowance of £50,000 will
affect 100,000 pension savers – 80% of those will have incomes over
The Government is committed to protecting individuals on low
and moderate incomes as far as possible. To protect individuals who
exceed the annual allowance due to one-off "spike" in
accrual, the Government will allow individuals to offset this against
unused allowance from previous years.
We will also consult on options enabling people to meet tax
charges out of their pensions in November.
In order to protect the public finances it is necessary to
introduce the reduced annual allowance from April 2011. The Government
plans to introduce the reduction in the lifetime allowance from April
Mark Hoban said:
"We have abandoned the previous Government’s
complex proposals and developed a solution that will help to
tackle the deficit but not hit those on low and moderate incomes. We
have taken a tough but fair decision.
The Coalition Government believes that our system is fair,
will preserve incentives to save and - compared to the last
Government’s approach - will help UK businesses to attract and retain
1. The Coalition Government confirmed in the June
Budget that it is committed to reform of pensions tax relief and would
continue with plans that it inherited to raise revenues from
restricting pensions tax relief from April 2011. However, the
Government had reservations about the previous Government’s approach.
It felt that this approach could have unwelcome consequences for
pension saving, bring significant complexity to the tax system, and
damage UK business and competitiveness. These concerns were shared by
representatives of the pensions industry and employers.
2. The June Budget announced that the Government was
considering an alternative approach to restricting pensions tax relief,
involving reform of existing allowances. A discussion document on the
subject “Restriction of pensions tax relief: a discussion document on
the alternative approach” was published in July 2010, inviting views on
a range of issues around the precise design of any such regime.
3. Throughout the summer an informal
consultation was held, with a wide range of pensions
professionals, industry bodies, employers and individuals’
representatives across the public and private sector engaging with HM
Treasury and HM Revenue & Customs. The Government received 238
written responses, 183 of which were from organisations. The Government
is grateful to all those who have provided views and participated in
discussions, and will continue to work closely with interested parties
to ensure that the reform is introduced as smoothly as possible.
4. Almost all of the responses to the discussion
document welcomed the alternative approach as a more workable way of
restricting pensions tax relief, and one which would also preserve
incentives to save. However, several respondents noted the challenges
for defined benefit schemes and their members, unless mitigated by
specific measures in the design of the overall regime.
5. Any reform must be sustainable in the long-term.
The discussion document the Government published in the summer noted
that a reduction in the annual allowance to between £30,000 and £45,000
could achieve this objective. However, the Government has
decided that targeting the lifetime allowance alongside the annual
allowance enables the latter to be £50,000. This will ensure that fewer
individuals on low incomes are affected by the regime.
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Article Published/Sorted/Amended on Scopulus 2010-10-18 13:53:43 in Tax Articles