Industry figures have claimed the annual allowance taper introduced in last week’s Budget could confuse individuals saving for a pension.
George Osborne revealed that from 6 April 2016, for every £2 of adjusted income over £150,000 the amount of tax-relieved pension saving made by an individual or their employer that year would be reduced by £1, down to a minimum of £10,000.
Portus Consulting commercial director Steve Watson warned employees may only be aware they had broken the limit after being hit with a tax charge.
Mr Watson said: “Anyone with variable annual earnings could potentially be at risk, and employers and employees need to think carefully about the implications.”
Mr Watson has not been the first to highlight the issue.
Former pensions minister Steve Webb has described the taper as “horrific” saying: “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?”
Adviser view
Jamie Smith-Thompson, managing director of Kent-based Portal Financial, said: “One of the main advantages of a pension under the current rules is tax relief, which is applied at the saver’s marginal rate of income tax. Removing that could be a serious deterrent to saving.”
