TAX NEWS - June 2010

UK Tax: Keep higher rate tax relief on pensions, says ABI

The Association of British Insurers is in behind-the-scenes discussions with the Treasury to abandon proposals to scrap higher-rate tax relief on pensions.

The ABI has been working on research, ahead of the Budget on 22 June, which shows the Treasury could receive a similar amount of money by cutting the annual allowance rather than scrapping the tax relief.

The unreleased figures show that rather than scrapping higher rate tax relief on pensions for those earning more than £130,000, the Treasury could raise around £3.6bn by cutting the annual allowance from £255,000 to £50,000.

Alistair Darling, Chancellor during the last government, used his last Budget to propose scrapping higher rate tax relief as a way of reducing the deficit.

The new Coalition Government has been silent on the move, but the Conservatives initially opposed it, while the Liberal Democrats supported the action.

John Lawson, head of pensions policy for Standard Life, said: "Virtually everyone in the pensions industry thinks it is desirable to keep people in pension schemes.

"If you kick them out you have to remember they control the pensions over everyone else. If they are not engaged, why would they show a great interest for their staff. These people are on the trustee boards deciding how generous schemes should be.

"It is up to the Treasury to look at the numbers. The whole industry is unanimous, it wants a reduced annual allowance."

The ABI declined to comment.