By 
A pension raid being considered by Sajid Javid could mean hundreds of thousands of retirees are forced to pay tax on their savings twice.
The Chancellor could axe pension tax relief for higher earners in next month’s Budget, landing anyone who earns more than £50,000 a year with a 20pc charge on their contributions.
Currently relief is given at the saver’s marginal rate of income tax. If it was cut to a flat 20pc, hundreds of thousands of people retiring on incomes high enough to be taxed at 40pc or 45pc would suffer from double taxation.
The Government estimated there were 554,000 pensioners paying the higher or additional rate in the 2018-19 tax year.
Steven Cameron, of Aegon, said: “At the moment you get your highest rate of tax relief on the way in and you pay your income tax on your highest marginal rate on the way out.
"Making a change to this is likely to change savings behaviours.”
Number of individual income taxpayers in the 2018/19 tax year
Mr Cameron predicted cuts to tax relief would push higher earners out of pensions and into Isas, where post-tax income can grow and be withdrawn entirely free of tax.
Yesterday, the Telegraph revealed some people could be £300,000 worse off as a result of the proposals, once lost investment returns are factored in.
A move towards Isas would favour the Government, said Simon Harrington, of Pimfa, a trade body for financial advisers. He said previous governments had come close to turning the pension tax system into one more akin to the Isa regime.
While Isas allow savings to roll up tax free, on death they are liable to inheritance tax, whereas pensions are not. This has allowed savers to shield large sums from the taxman by filling up pension accounts.
Comments