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Pre Budget Report: chancellor confirms cut in pension tax relief for high earners

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The Government will keep to its plan of reducing the pensions tax relief for high earners.

The chancellor of the Exchequer, Alistair Darling, said in his Pre Budget Report speech today: "I announced in the Budget that we would reduce pension tax relief for people with incomes over £150,000.

"I want to do this as fairly as possible and treat individuals the same regardless of whether they receive their pay as current salary or as a future pension benefit, and prevent tax avoidance. So I have decided to include employer pension contributions in the definition of income for this tax measure. 

"To provide certainty I will introduce a floor so that irrespective of the size of employer pension contributions no one with an income below £130,000 will be affected."

But Mark Duke, head of pensions at Towers Perrin, said: "The pensions tax regime is set to become an administrative quagmire. Employees with higher incomes and pension plans will be confronted with a plethora of new rules as they try to work out whether and what extra tax is due."
 
"The pension changes are part of an unshakeable policy goal to collect more tax from the better off. Lobbying efforts must now focus on damage limitation by trying to make the new rules workable."
 
"To hit the Government's tax gathering target, it has been decided to increase the affected group by around 30%. This has been achieved by counting company pension contributions as income when testing whether someone has breached the £150,000 pa threshold."

Darling also confirmed the launch of personal accounts would be delayed by one year so the auto-enrolment of employees into the pension scheme and employer contributions of 3% would move from October 2015 to October 2016.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: "We welcome the commitment to press ahead with the 2012 pension reforms. However, we are disappointed that their full implementation will be delayed. Although the start of the new automatic enrolment regime remains as 2012, it will not be fully operational until 2017, a year later than planned. We need to get more people saving for their retirement as quickly as possible."

The Chancellor also added the state pension would rise by 1.5% in 2011.