Posted on 23 April 2015
We may not yet know who will win the general election, but one thing is certain; pension tax relief is likely to be restricted for high earners, regardless of who gets into Number 10.
Both the main parties (Labour and Conservatives) will cut the amount you can save over your lifetime from £1.25 million to £1 million.
As part of their manifesto, the Tories have pledged to remove family homes worth up to £1m from inheritance tax at a cost of £1bn. This will be paid for by reducing gradually the annual allowance from £40,000 to £10,000 on pension contributions for those people earning more than £150,000.
The Labour party says it will reduce pension tax relief for those earning over £150,000 a year, in this case to fund a cut in student tuition fees from £9,000 to £6,000 a year. The relief would be cut to 20%, the same rate as for basic rate taxpayers. Labour has also said it will further reduce the amount people are allowed to save into pensions in any given year to £30,000 from the current £40,000
The SNP and the Liberal Democrats have both talked about a creating a flat rate of pension tax relief which will help basic rate taxpayers but hit those earning more.
Our message is simple; if you earn more than £150,000 you should consider maximising your pension contributions now, before any changes come into effect. It is unlikely that you will be unaffected whichever way the vote goes on May 7th.
Smith Cooper Independent Financial Solutions Ltd is authorised and regulated by the Financial Conduct Authority (443209). This information is based on our current understanding of legislation and regulations.