Pension funds attack allowance changes

The National Association for Pension Funds (NAPF) has called on the government to review its plans to reduce the amount of tax relief available for those with income of more than £150,000 a year, arguing that the changes would be expensive to implement and undermine pension provision for less well off employees.

Under the proposals, set to be introduced from April 2011, tax relief on pension contributions would be restricted to the basic rate for those with income of over £180,000; those in the band £150,000 to £180,000 will see their tax relief reduced proportionately until they reach the £180,000 limit; NAPF argues that the changes would have a series of unintended consequences.

Workers earning salaries of between £40,000-80,000 who receive a promotion, relocation expenses or a redundancy payment they could be caught under the proposed regime and earning around £130,000 could be affected if employers’ pension contributions push them over the proposed £150,000 limit.

NAPF claimed that implementing the scheme would cost up to 10 times more than the Treasury estimated, posing “high and disproportionate costs” for businesses that could encourage many companies to close their schemes “at a time when workplace pensions are in a fragile state”.