Retirement Income  

Chancellor pressured to bin annual allowance taper

Chancellor pressured to bin annual allowance taper

Providers have rallied to call for the annual allowance taper to be abolished at this year's Autumn Statement.

Brought in by former chancellor George Osborne, 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.

At the time, industry figures claimed the annual allowance taper introduced could confuse individuals saving for a pension.

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Ahead of the Autumn Statement on 23 November this year, a number of providers have spoken out again.

Mike Morrison, head of platform technical at AJ Bell, calculated that with a threshold income over £110,000 and adjusted income over £150,000 then the annual allowance will taper, so if it is over £210,000 the maximum annual allowance will be £10,000.

He told FTAdviser: "This is total gross income from all sources, so includes investment income, not just salary."

If a person pays in more than their tapered annual allowance they could get a tax charge.

Mr Morrison added a member of a large defined benefit scheme could also see their annual allowance reduced by any income that is generated away from their pension scheme.

He said: "They could get a tax bill next year even though they have never had one before."

Tom McPhail, head of retirement policy at Hargreaves Lansdown, branded tapering a "nasty pernicious policy", adding "we absolutely think the tapered annual allowance has to go."

However he added it was "unlikely" in the Autumn Statement, because changes to pensions policy need to be considered in the round to prevent destabilisation of the system. 

But Mr McPhail it was a matter of when, not if, the Treasury moved to abandon the policy, and an announcement could be made as soon as the Budget in Spring 2017.

Former pensions minister Steve Webb, now director of policy at Royal London, said tapering on the annual allowance is "nonsense", and has previously branded the policy "horrific".

He said: "An abolition of the tapering rules, coupled if necessary with a slightly lower annual allowance to recoup the lost revenue, would be a much simpler and cleaner system."

Jamie Jenkins, head of pensions strategy at Standard Life, said new chancellor Philip Hammond could signal to choose a change in tax relief because the consultation for that has already been done.

He told FTAdviser Standard Life would welcome a clear direction of travel for pensions and tax relief over the long term, including binning tapering.

John Lawson, head of policy for retirement solutions at Aviva, said as part of a review of pension tax relief the "tapered annual allowance should be scrapped”.

Rod McKie, Zurich's head of retirement propositions, said the tapered annual allowance adds "additional complexity to the pension system, which savers could do without".  

Former pensions minister Baroness Ros Altmann echoed the stance of many pension providers.