Pensions groups welcomed the news that the Government is considering scrapping plans to limit tax relief on pensions for high earners.
The previous government had planned to reduce the amount of tax relief people earning more than £150,000 qualified for from April next year.
But Chancellor George Osborne said that the Government would consult on other ways to save money on pension contributions for high earners, such as by limiting the annual amount people can save into a pension. It is thought that reducing the current annual allowance of £255,000 to between £30,000 to £45,000 would produce a similar saving for the Treasury as the £3.5 billion that would be saved through reducing pensions tax relief for people earning more than £150,000. It would also be much simpler to administer.
Joanne Segars, chief executive of the National Association of Pension Funds, said: “We are pleased the Chancellor has listened to our argument for a much simpler and more radical solution.
“The previous government’s proposals were a disaster in the making. They would have been very damaging to the pensions of all working people, not just the well-off.
“Reducing the amount that can be paid into a pension tax-free each year will protect the Treasury’s tax take, but will be much more supportive to pensions saving and less costly to implement.”
Andrew Cawley, UK head of pensions at KPMG, said: “This is a positive move by Government to avoid further damage to pension provision in the UK and hopefully will remove some of the likely market distortions of the proposed changes, which would have seen high earners in both the public and private sectors extremely impacted.”
Financial adviser Hargreaves Lansdown said if an annual contribution cap of £40,000 was introduced, people earning £200,000 with an employer contribution of 20 per cent would still benefit from full tax relief.
The Government also announced a consultation on ending the current rules under which people have to use their pension fund to buy an annuity by the time they are 75. Andrew Tully, senior pensions policy manager at Standard Life, said: “These are positive steps.”