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The Actuary The magazine of the Institute & Faculty of Actuaries

Light relief for higher earners

The legislation to implement the future cut in pension saving tax relief for those earning more than £150 000 a year makes its progress through the House of Commons. Lobbyists seeking to relax the rules for the interim period find that the government will now allow those who pay contributions annually (as a lot of higher earners do) a contribution of £30 000 (or the average of the last three years’ contributions, if lower) before they are restricted to a new penal level of tax relief. It was originally to be only £20,000.

For those on such high levels of earnings, will one or two extra contributions of £10,000 make that much difference? It is tempting to wonder why so much effort is put into limiting tax relief on contributions rather than the simpler approach of putting a ceiling on contributions as they did in the ’80s and ’90s. It seems unlikely that many people will want to pay contributions on which they get 20% tax relief if they are to pay 40% tax on the pension with which they end up.