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Budget 2009: High earners to lose tax breaks on pension contributions

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The Government will remove the higher rate tax relief on pensions contributions.

Currently those who earn more than £150,000 per year (1% of the working population) receive higher tax relief from the Government on their pensions contributions but the Chancellor will cut it to align it with that of lower earning pension savers.

Paul Marks, technical consultant at Pension advisers Gissings, told HR magazine: "This idea has been touted in the past and the loss of tax relief for those affected will be significant.

"There are already not enough people saving in pension schemes and those that are don't save enough. Tax relief was designed to encourage saving for retirement. I think this a really short-sighted approach. There have been so many pensions proposals pushed through in the past four years. I think it's time pensions were left alone."

Pam Loch, founder and principal at employment law firm Loch Associates, said: " I can't understand the rationale behind this as it will have a negative impact on the pensions industry in making pensions more unattractive to employees than they already are."

And John Jory, deputy chief executive of B&CE Benefits Schemes, agrees. He said: "We would rather the chancellor didn't mess around with pensions. There are already enough changes coming in with pensions legislation and personal accounts in 2012.

"This could put more pressure on employers to increase salaries - but I think this will encourage more organisations to adopt salary-sacrifice schemes around pensions [where employees pay their pension contributions from gross salary rather than net salary - saving them tax and National Insurance Contributions]. This means the real loser will be Darling because employees will save tax another way."