UK Budget 2013 – Osborne Set to Raid Pension Pots of the Wealthy

The amount retirement savers can put in to their pension every year may be cut under proposals under consideration by the Chancellor George Osborne for the forthcoming Budget 2013.

He is set to make the move after promising to balance a planned welfare squeeze which would save around £10 billion over the next three years with new taxes on the rich.

And, after ditching the controversial idea of a ‘mansion tax’ which would have seen a new higher tax band for properties worth more than £1 million, Osborne now looks set to hit the pension pots of the rich.

The potential move is due to be announced in his autumn statement on December 5, and is thought to be a trade-off with coalition partners.

Indeed, the idea to tax the pension pots of rich people has been a proposal from the Liberal Democrats for a long time.

Chancellor targets high rate taxpayers

The argument is attractive one because of the money it will save.

In Osborne’s first emergency Budget in 2010, he cut the maximum annual pension contribution which is exempt from tax from £255,000 to £50,000.

Now he is understood to be reducing that threshold still further – a new figure of £40,000 would raise about £600 million for the Treasury coffers.

But there are fears that he is planning on a cut to £30,000 which would raise £1.8 billion.

The money is saved because high rate taxpayers receive 40p in tax relief for every 60p they save into a pension plan, bringing their contribution up to £1.

Additional rate taxpayers receive 50p in tax relief.

Figures suggest that around 100,000 UK taxpayers every year currently save £50,000 or more into their pensions.

But those doing so aren’t always the ‘super rich’ – they include high earners such GPs and headteachers who are on generous final pension schemes.

Unfair to business owners

Reductions to the threshold will affect the eventual pension they receive.

But pension experts argue that every time the threshold is reduced it discourages people from saving into a pension scheme to pay for their retirement.

Adrian Boulding, the pensions strategy director at Legal & General, explained reducing the threshold would unfairly hit small business owners.

“Entrepreneurs trying to make pension provision in SiPPs and SSASs are probably making irregular payments because of the nature of the business,” he said.

“They may go 10 or 15 years without paying anything in but then they will make a sizeable contribution because their business has done well – we need to entrepreneurs to help get the country back on its feet and instead it looks like the Treasury will give them a kicking.”