The rise in auto-enrolment contributions from 2018 will cost the chancellor in tax relief, according to one wealth management boss.
John Spiers, chief executive of wealth management firm EQ Investors, said the amount going into the auto-enrolment schemes will increase sharply, and will mean George Osborne has to dig deep into his pockets.
“He will have to offer pension relief on that, and that’s going to cost him quite a bit of money from 2018 onwards.”
Speaking on the Today programme this morning, Mr Spiers said that changing tax relief on pension contributions, expected in next month’s Budget, is a concern because people might be put off saving as higher earners would be priced out of pensions.
Mr Spiers said: “People are expecting, instead of the amount of tax relief to be linked to the amount of tax you pay, for it to be a flat rate.”
“If you’re designing a pension scheme from scratch now, it would be quite hard to see why you should give an extra incentive to those who are already quite a lot better off than the average person.
“When you keep making changes to the scheme every year, and you're trying to encourage people to invest for decades, it produces no confidence, and so he’s got a difficult balancing act here.”
Mr Spiers said that the system was “incredibly complicated” and penalises strong investment performance, so if George Osborne does bring in the flat rate scheme, “then at the very least I’m hoping he’ll remove the lifetime limit”.
Meanwhile, the EQ Investors boss also announced details of its new investment service, aimed at experienced investors interested in taking advantage of the multiple tax reliefs offered by venture capital trusts.
To address the increasing demand for quality tax-efficient products, the service is designed to offer crucial analytical research of the company’s ‘top picks’, including provider and product reviews.
Mr Spiers said: “With the rumoured changes to pension tax relief, experienced investors will be looking for complementary options to supplement their investment portfolios.
“We expect demand for VCTs to outstrip supply for the foreseeable future as the number of opportunities for tax efficient investing by higher rate taxpayers reduces.”