The Treasury has announced that the maximum an individual can invest in a pension and receive tax relief will be reduced from £255,000 to just £50,000 from April 2011.
It was also announced that the maximum balance which can be held in a pension without an onerous tax charge being levied, will also be reduced to £1.5m from £1.8m. This change will take place from April 2012.
The Treasury expect the changes to effect 100,000 individuals, 80% of whom earn in excess of £100,000 per annum. It is anticipated that the changes will ultimately raise £4bn a year.
Mark Hoban, financial secretary to the Treasury 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”.
In a further change those wishing to pay one off contributions of more than the new £50,000 allowance will be allowed to offset these against unused allowances from previous years.
The Association of British Insurers welcomed the move to set the annual allowance at £50,000. ‘This is a much more practical way to incentivise pension saving through a simple, easy to understand system compared to the overly complicated proposals of the previous government to gradually lose all tax relief after £150,000 of income,’ said Maggie Craig, director general of the ABI.
Higher rate tax payers will continue to receive tax relief at the same rate as they pay income tax.
