Pensions  

Webb brands annual allowance taper ‘horrific’

Webb brands annual allowance taper ‘horrific’

Former pensions minister Steve Webb has reacted critically to George Osborne’s summer Budget, describing one change to pensions tax relief as “horrific”.

Mr Webb said plans to introduce a taper to the annual allowance for those with adjusted yearly incomes, including their own and employer’s pension contributions, of more than £150,000 would be “horrific” because of its effects on savers.

He warned that the measure could be confusing for people in self-employment, as well as potentially driving higher earners away from pensions.

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Mr Webb, who lost his parliamentary seat in May’s general election, said: “If you are self-employed, you do not know what your income is going to be (in a particular year). Will it turn out at the end of a year that your allowance has been reduced to £10,000 and not £40,000, and you are subject to a tax charge?”

He claimed that the change could affect how higher earners behave, saying: “Higher earners will try and find somewhere else to put their money. It is hard to see that being a good thing.

“We are also moving away from the higher earning people in the business caring about the work place pension, which is not good.”

As part of the taper, which comes in from 6 April 2016, for every £2 of adjusted income over £150,000 the limit on the amount of tax-relieved pension saving made by an individual or their employer that year will be reduced by £1, down to a minimum of £10,000.

Those with income excluding pension contributions of less than £110,000 will not be subject to the tapered allowance.

In another move announced by the chancellor, HM Treasury published the 29-page paper, Strengthening the Incentive to Save: a Consultation to Pensions Tax Relief.

The paper said: “If people are to take responsibility for their retirement, it is important that the support on offer from the government is simple and transparent, and that complexity does not undermine the incentive for individuals to save. It is also vital that the system is sustainable.”

Mr Webb welcomed the fact that the government had chosen to consult on the future of the pensions tax relief system but asked: “Why didn’t they apply those principles to what they have done today (with the taper)?”