All for one and one for all

I believe the best company pension schemes will involve everyone.  They will be open to all and all will want to join.  Management in particular will be members and their active participation will focus the attention of senior management and will benefit the scheme as a result.

The planned reduction in the annual allowance will prevent this scenario from happening.  By scaling down the annual allowance to less than 5% of pay for those earning over £210,000 the government will be denying senior management participation in the company pension scheme. 

The annual allowance is the maximum amount of pension contribution - employee and employer combined - that qualifies for tax relief.  It has taken something of a battering of late.  Introduced in 2006 at the rate of £215,000 it was steadily increased until 2011 when it was cut to £50,000.  It now stands at £40,000 and government proposals will reduce it further for those earning over £150,000.  From April 2016, the reduction will be £1 for every £2 earned over £150,000 until the annual allowance reaches £10,000. If this change goes through, saving for retirement for high earners will be complex and more advice will be needed.

The government say the reduction in the annual allowance will pay for the increase in inheritance tax relief also announced in this year's summer budget. 

The government are consulting on how to encourage people to save more through their pension scheme (see ). They have asked what changes could be made to the tax system to achieve this end.  Surely the cut in the annual allowance is contrary to their objective.  Many people take the view that people earning in excess of £150,000 do not need the pensions tax break.  But if the government objective is to increase inheritance tax relief and get high earners to pay for it, they could do this via other means?  Why add more complications to pensions?  They're hard enough already.

All for one and one for all worked well for the musketeers.  Although not as exciting as Alexander Dumas, pensions also benefit from the same approach.  If you agree, why not let George Osborne know and respond to his consultation exercise? 

The consultation ends on 30 September 2015. If there was ever a pensions consultation worth engaging with passionately then, whatever your viewpoint, this is it. 

See our consumer research on the subject of pensions tax relief - click here.


Raj Mody | Partner
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