Current plans by the political parties for pension tax are going to hit those earning over £150,000. In interviews, the Conservatives have indicated that they intend to reduce the current £40,000 annual pension allowance for anyone earning over £150,000 on a sliding scale down to just £10,000 per annum for those earning £210,000 or more. Labour have said they will reduce the annual pension allowance for everyone from £40,000 to £30,000 and that for those earning £150,000 upwards, tax relief on contributions will be reduced to 20%.
A recent bulletin by the association of consulting actuaries said:
Most of the manifestos still see pension tax relief as a political cash-cow, funding pet initiatives to target key voter groups. Already, the changes made in the 2015 budget begin to make ISAs a more attractive alternative to saving through a pension scheme. Locking savings away for the long term in growth assets significantly benefits industry and individuals whilst saving in ISAs may generate lower returns and be more short term in nature. (http://www.actuarialpost.co.uk/downloads/cat_1/ACA%20Placard%20%2822%20April%202015%29v1.pdf)
Although it is unclear who will be in charge after the election, it’s clear that all parties intend to reduce tax relief to higher rate tax payers. It seems sensible therefore to accelerate this year’s ”normal” contributions and pay them now. You might also consider using up any unused allowance from previous years at the same time if cash flow permits.
Pension tax relief has been cut back so much in previous years; it’s hard to see how the pensions industry will cope with these continued cuts as the tax relief has always given them a head start against other investments. High earners will probably start turning their attentions to EIS, SEIS and VCT investment.