Gov’t Draws Up Plans to Cut Pensions Annual Allowance (Article by Alex Steger in New Model Advisr on 14.02.2012)

14 Feb
Gov't draws up plans to cut pensions annual allowanceThe government has drawn up plans to cut tax relief on higher rate earners pension contributions in a bid to fund plans to raise the personal allowance to £10,000 ahead of schedule, according to reports.Currently workers receive tax relief on pension contributions up to £50,000, but The Financial Times has reported that under proposals currently being discussed this limit could be reduced raising funds to pay for an increased annual allowance.

The government already reduced the annual limit from £250,000 to £50,000, but according to the FT prime minister David Cameron, chancellor George Osborne, deputy prime minister Nick Clegg, and Treasury chief secretary Danny Alexander are considering the plans which would save the government billions of pounds per year.

The paper quoted a person close to George Osborne, who said: ‘This is being looked at, it is definitely a good way to be able to raise money to get towards the £10,000 tax rate.’

In an interview with the Daily Telegraph Alexander recently said: ‘If you look at the amount of money that we spend on pensions tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate.’

Clegg recently called on the government to raise the rate at which workers start to pay tax to £10,000 sooner than it had originally proposed. Doing so by 2015 would be set to cost about £4 billion, and if done by 2014 would cost £5.5 billion, none of which has yet been budgeted for.

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