David Blackburn

Dramatic cut in pension relief

Dramatic cut in pension relief
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The coalition is not afraid of the moneyed classes, or Peter Mandelson's 'filty rich'. Tax relief on pension contributions is to be dramatically cut.  The allowance will be decreased from £250,000 per annum to £50,000 and the pension cap will fall from £1.8m to £1.5m and retiring workers could be taxed at 55 percent on any sum above that sum. These changes will save the Treasury £4bn per annum, mainly by limiting how much of a bonus pot or a windfall can avoid income or capital gains tax.

The Telegraph describes the move as a ‘raid’ on the 'squuezed middle', which is not strictly true. The previous governnment made similar plans and this is a re-worked formula designed not to penalised middle Britain. Reducing the threshold to £50,000 will hit the richest contributors - the Treasury estimates that this will affect people who earn over £100,000 a year. But the government is conscious to avoid lacerating savers. Allowances can backdate for up to three years, so people can put lump sums of £150,000 into a pension pot tax-free - the thinking being that should someone of modest means inherit a house, they will not be penalised for saving for the future, especially after having paid inheritance tax on the windfall.

That said, the government has played its trumps early in this hand. The prelude to the spending review has been dominated by a very calculated and determined effort to prove that the Conservatives are prepared to crucify their constituent base. The brutal assault on affluence continues, and now it has escaped the boundaries of state welfare and become more general. This not an ideal world, they are saying, far from it; but at least we’re in it together. It's clever positioning. Labour needs to consider its response carefully - less it is forced to 'defend the rich at the expense of the poor' for the sake of universal welfare or the 'squeezed middle', as Ed Miliband did at PMQs yesterday.