THE chancellor has continued his attack on the pensions of higher earners – in a move expected to affect many top oil industry workers.
He previously announced he would reduce pension tax relief for people with incomes of more than £150,000. Mr Darling has now decided to include employer pension contributions in the definition of someone’s income for this tax measure. In another blow, people paid over £130,000 will be affected.
Hazel Brown, a director at financial adviser Thomson Shepherd based in Perth, said: “As a result of legislation effective from April 22, 2009, around 300,000 individuals with total earnings above £150,000 are considerably more restricted in the pension contributions they can make. Before April 2009, an employee with earnings of £200,000 could have made a personal contribution of 100% of salary and received tax relief of £80,000.
“In addition, their employer could have made a contribution, capped only by what would be considered ‘wholly and exclusively for business purposes’, so this could have been substantial.
“After April 2009, in cases where the high-earning employee had no significant regular contributions already in force, the maximum personal contribution is £20,000 (gross), reducing the available tax relief to £8,000 – 10% of what it could have been under the previous legislation. Employer contributions for these individuals are now unattractive as these would be taxable on the employee.”
Ms Brown said the full implications from yesterday’s moves were not likely to become clear for some time.
Marc Hommel, partner and pensions leader at PricewaterhouseCoopers, said: “The announcement that employer contributions will now also be included in higher-rate tax relief restrictions for people earning £130,000 or more, together with the associated administrative complexity, will result in further acceleration of scheme closures.”
Andrew Tully, senior pensions policy manager at Standard Life, said: “This is very disappointing “Continuous changes to pension tax rules do nothing to encourage saving, and we urge the government not to proceed.”