Second 'grab' on pension savers forecast by director

Any moves to further reduce tax relief on future pension contributions would be a “second tax grab on pension savers”. With pension freedoms forecast by the OBR to have generated an additional £1bn in income tax in their first year, a regulatory expert says savers should be primed another hit.Changes are expected to be announced in the forthcoming Budget following a public consultation launched last summer.{desktop}{/desktop}{mobile}{/mobile}While the original consultation was called ‘Strengthening the Incentive to Save’, most agree the changes will be at least as much to do with closing the Budget deficit as with encouraging savings, according to Steven Cameron at Aegon.His comments come after a Freedom of Information request revealed that another of the Chancellor’s pension tax changes, which has chipped away at the total amount, which can be held tax free in a pension, has generated almost £100m in additional tax revenues.This showed that as a result of reducing the lifetime allowance from £1.8m to £1.25m in 2014/15, pension savers paid £94.2m in extra income tax as a result of having exceeded the allowance. The Chancellor has announced a further reduction to £1m from the 2015 / 16 tax year.Mr Cameron, regulatory strategy director at Aegon, said: “The pension freedoms are good news for many pension savers – but they are also good news for the Chancellor’s tax take. Any moves in the forthcoming Budget to further reduce tax relief on future pension contributions would represent a second tax grab on pension savers.”While freedoms have been widely welcomed, he said, many of those who have taken advantage of them will also “have done their bit to help close the Chancellor’s Budget deficit”.He said: “After the first 25% which can be taken tax free, individuals pay income tax on any further pension withdrawals.“Furthermore, those taking larger lump sums could find that this moves them into a higher income tax band. If they had taken income as a regular stream, they might have paid 20% tax. But by taking it as a large lump sum, they’ll pay 40% or even 45% on part of it. So not only are they paying tax sooner, they are also paying more overall, creating a further windfall.”

Second 'grab' on pension savers forecast by director

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