George Osborne is set to cut the lifetime allowance of tax free pension savings from £1.25m to £1m tomorrow, according to the latest speculation around the Budget.
The unlikely source of tabloid the Sun, not famed for its pensions coverage, reported the move, which it said will “address concerns that youngsters have borne the brunt of the deficit reduction in favour of wealthy older people”.
HM Treasury would not comment on “speculation”, which seasoned political observers will know says nothing about the veracity of the claims.
Currently savings of up to £40,000 a year qualify for tax relief at the marginal rate of the saver, subject to an upper limit on the value of the fund to remain tax sheltered over the savers’ lifetime of £1.25m. After this a 55 per cent tax charge applies.
The limit has been reduced several times since being introduced in 2006, falling from £1.5m in April last year following a reduction from £1.8m in 2011.
The news follows the announcement by Labour of an effective triple whammy if it is elected: cutting the lifetime allowance to £1m, reducing the annual allowance to £30,000 and reducing the amount of relief available to those earning £150,000 from 45 per cent to 20 per cent.
Labour said its plans would raise £2.7bn, which would pay for a cut in tuition fees from a maximum £9,000 to £6,000. It also plays into a wider strategy of attenpting to portray the Conservatives as disproportionately favouring older voters.
The apparent leak follows this morning’s reports in the Guardian and the Daily Telegraph that the chancellor has proposed allowing parents to pass a main property worth up to £1m to their children without paying inheritance tax.
The changes would introduce a new allowance where a property is passed on to close family members and children, lifting a £1m property out of the tax altogether and reducing the inheritance tax bill on properties up to £2m by £140,000.
Other changes include the confirmation of a story first reported by FTAdviser parent title the Financial Times that the government is to consult alongside the Budget on plans to legislate to allow the creation of a secondary market for annuities.
There has also been widespread speculation that revisions to forecasts following a dip in the oil price could allow the chancellor wiggle room to ease austerity. Most are anticipating further moves to entice savers, including by raising the income tax minimum threshold to at least £11,000.
FTAdviser sister title Investment Adviser predicted yesterday that the last Budget before the election was likely to be more a case of political headline-grabbing than real economic substance, despite claims from the chancellor that it would not include “giveaways and gimmicks”.
It awaits to be seen how the move on the lifetime allowance might affect likely voting intention.
A survey of more than 2,000 people from across the UK by True Potential showed the Conservatives came top (with 46 per cent) among voters aged 35 and over when asked which party they think does most for savers.
Labour came in way back in second place with 32 per cent, however, the initial Twitter response to the latest leak has suggested that the Conservatives’ lead in this area could slide.
True Potential’s managing partner David Harrison said that the results are evidence that what Mr Osborne has done so far is working.
He said: “Savers want flexibility and freedom, so I welcome any measures that encourage saving and remove complexity. I hope that we see more of that on Wednesday and after May’s election.”
peter.walker@ft.com
