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Pension contribution cap to be reduced

Pension contribution cap to be reduced
Friday, 15 October 2010 23:00

The Treasury have confirmed that it plans to reduce the annual limit on the amount of pension contribution people can receive tax relief on from £255,000 to £50,000.

It has also confirmed that it will reduce the lifetime allowance on money that can be saved in a pension fund for which tax relief is allowed. This will come down from £1.8 million to £1.5 million.

Higher earners will, however, retain the benefits of tax relief at 40 per cent and 50 per cent.

The labour government had proposed that those earning £150,000 or more should have a taper applied reducing the tax relief to 20 per cent. These plans have now been dropped.

The government hopes that the change will in time save as much as £4 billion. It has also estimated that the change to the annual allowance will affect some 50,000 savers of whom 80 per cent will be earning over £100,000.

The new annual allowance will come into effect as from April 2011; the new lifetime allowance from April 2012.

Mark Hoban, the Financial Secretary to the Treasury, commented: "We have abandoned the previous government's complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.

"The coalition government believes that our system is fair, will preserve incentives to save and - compared to the last government's approach - will help UK businesses to attract and retain talent."

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