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Pension tax relief has been slashed from £50,000 to £40,000 in a move to target high earners


In his Autumn Statement speech today, chancellor George Osborne announced he is cutting the annual pension tax relief from £50,000 to £40,000.

He said: "From 2014 to 2015 lifetime pension relief allowance will to fall from £1.5m to £1.25m.

"The basic state pension will rise by 2.5% next year to £110.15 a week."

Osborne added: "In cutting tax relief we are showing ways to reduce deficit and as we are all in this together turning back now would be a disaster."

Peter Maher, director and head of financial services at accountancy firm, Smith and Williamson told HR magazine: "The cutting in pension relief to £40,000 is not a good idea, and strikes of short-termism.

"It would've been a better idea to leave it at £50,000 and then reduce tax rates to 30% or 40%. Taking into consideration that the earners he will be hitting will already be paying over 50% of tax then I believe that is probably enough."

Maher added: "Most people will see this as positive news at it will only affect about 5% of the population and I suppose if they are going to reduce it from £50,000, it's a good idea the Government has gone the full way."

Alison Fleming, head of pensions at PwC in Scotland, said cuts would be "another nail in the coffin for defined benefit pension schemes", adding: "It's not just higher earners who will be impacted - this is likely to adversely affect all employees.

"With recent uncertainty over the tax regime and other features such as auto-enrolment currently being implemented, business and employees alike need a sustained period of minimal changes to the pensions regime."

Jamie Fiveash, head of customer Solutions at B&CE, said the move was disappointing. "It is concerning the Government continues to tinker with pensions at what is a crucial time for pension saving in the UK. With initiatives such as automatic-enrolment beginning in earnest it is vital that pensions are seen to be attractive savings vehicles as we attempt to tackle the huge projected UK shortfall in retirement saving. Therefore the Government should support pension saving wherever possible.”

Kevin Green, chief executive, Recruitment and Employment Confederation (REC), said: "In a lot of ways it hasn't been thought through, not many people care about high earners but if you start to drag in the 'so called' squeezed middle then people will start to worry about these cuts."