Pensions tax relief plans for top-earners 'could backfire' Treasury warned

Date: 20th May 2009

Cutting pension tax relief for the country's highest earners could have a "damaging impact" on retirement saving levels, the government has been warned.

In the Treasury's most recent Budget, chancellor Alistair Darling laid out plans to reduce tax relief rates on pensions for those earning in excess of £150,000 a year.

While the proposals call for a tapering system of tax relief cuts, from 40 per cent down to just 20 per cent and even though the rules would only affect a small number of Britons, the Association of British Insurers (ABI) has now argued that the initiative could damage confidence in the pensions system.

"The government and the main opposition parties must not undermine the principle of tax relief on pension savings any further by continuing to remove tax relief, either now or in the future," commented ABI director of life and savings Maggie Craig.

She added: "To do so would seriously damage public trust and confidence in the UK's pension system. That would mean less saving overall, and the prospect of a massively increased public bill for looking after people in retirement."

It is estimated that, should the tax relief plans come into effect, just 290,000 people will be affected.