Merryn's Blog

Earn over £150,000? Pour money into your pension now

If there’s one thing that all the political parties agree on, it’s that the well-off get too much in the way of pension relief. So take full advantage before the election, says Merryn Somerset Webb.

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There is it seems no problem in the UK that can't be solved by raiding someone's pension. The major parties have now all published their manifestos and every single one includes some sort of reduction in pension tax relief for higher earners.

The Conservatives plan to pay for their idiotic housing bubble booster policy of creating a new IHT main residence relief by "reducing the relief on pension contributions for people earning more than £150,000".

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Labour plan to use the same wheeze to cut tuition fees, and the Lib Dems intend to introduce a "single rate of tax relief for pensions," presumably at the 30% rate they have endlessly discussed in the past.

There's more. Jason Holland of Tilney Bestinvest notes that the Conservatives have also indicated that "they intend to reduce the current £40,000 annual pension allowance for anyone earning over £150,000 on a sliding scale down to just £10,000 pa for those earning £210,000 or more".

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Labour intends to reduce the annual pension allowance for everyone from £40,000 to £30,000. For those earning £150,000-plus, it will reduce tax relief on contributions to 20%.

The key point here is that all the parties clearly agree that the well-off get too much in the way of pension relief and that this must end so whatever the mix of the new government we can be pretty sure that it will.

That means that any high earners not yet in danger of hitting the Lifetime Allowance limit on retirement should, if possible, pour what money they can into their pensions now. You can currently put in £40,000 a year (for a 45% taxpayer this would only cost £22,000) and roll up unused allowances from the previous three year.

Given that, and the high likelihood of an emergency Budget in the weeks after the election, it seems clear, says Holland, that anyone getting 45% relief on their pension contributions is now in "last chance saloon". Those people might want to make new pension contributions sooner than later.

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