Call for more consultation on pension revamp

PricewaterhouseCoopers has called on the Government to undertake further consultation on the pension tax relief revamp announced in last month’s Budget.

Such a move is necessary to ensure that the ‘level playing field’ objective sought by the Treasury becomes the reality, said the accountancy giant.
 
Proposed changes announced by the Chancellor could see basic rate tax relief on pension contributions for taxpayers who receive a total annual income of £150,000 or more, effective from 22 April 2009.

This is particularly likely to apply to those over the income threshold who make irregular payments to their pension plans (i.e. less frequently than quarterly), commented PwC, which then highlighted the potential plight of taxpayers in short-term, high earning-potential careers, such as professional athletes.

They are often advised to use their earnings to support a high level of deductible pension contributions and fully fund their lifetime allowance as a matter of prudence, said the Big 4 firm. The proposals announced in the Budget will restrict the ability to fund their retirement in this way.

Taxpayers whose total annual income sits within the threshold may also be affected if made redundant, claimed PwC. Where a pay-off results in an individual exceeding the threshold income, then the use of a severance sacrifice into pension contributions will no longer be efficient,

Partner Alex Henderson remarked: ‘Although the proposed changes announced refer to those with a total income in excess of £150,000, other employees may be keen to understand changes to pension tax rules… [because] there will be the worry that the limits could again be amended, immediately without the benefit of any consultation.
 
‘In addition, economic forces, such as inflation can affect pensions, making them less attractive – not just for those who are above the cap, but also on the next tier down. Many employees will have seen their pension pots fall substantially and will be nervous about investing in equities, while the continuing 0.5 base rate will keep rates on deposits low,’ added Mr Henderson.

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