A new analysis has found that two thirds of higher rate taxpayers will face a “retirement crisis” if George Osborne pushes ahead with the Government’s pensions tax raid.
The Chancellor has revealed potential plans to end generous rebates for higher-rate taxpayers on pension contributions, replacing them with a new flat rate of relief – which could be as low as 20%.
But recent analysis has found that two thirds of higher rate taxpayers – or around 3.2 million people – are not currently saving anywhere near enough for their retirement.
The analysis found that Osborne’s decision to scrap a higher rate tax relief on pension contributions would undoubtedly “penalise” higher-rate savers.
Experts have speculated that the decision could also further discourage savers from side-lining spare cash for their later years.
Under the current system, basic-rate taxpayers receive a £20 top-up from the Government for every £80 they pay into a pension.
Those earning more than £42,385 are classed as “higher-rate taxpayers”, and receive £40 for every £60, while top-rate taxpayers receive £45 for every £55.
Under Osborne’s proposed flat rate relief of 20% for all, savers will receive £25 for every £75 they contribute – in a move expected to save the Treasury approximately £6 billion.
However, Conservative MPs are increasingly concerned that the move would damage their constituents and core supporters.
Sir Alan Duncan, a former minister, said: “What is really important for the future is that we have stability, no retrospective adjustments and a system that encourages people to put a lot of money away for the future.
“You can’t plan for a pension if you are halfway through doing it and someone pulls the rug from beneath you.”
Tory MPs have warned Mr Osborne that he will face a “riot” if he pushes ahead with the proposed plans.