Darling urged to reform pension tax proposals

The Government is being urged to scrap its ‘complex and costly’ proposals on the tax treatment of pension contributions.

The call came from the National Association of Pension Funds (NAPF), which has warned that the Chancellor’s plans to tax the pension contributions of high earners will do ‘enormous harm’ to company pension provision.

‘Senior executives, who have responsibility for company pension provision [will] opt out of their company provision due to the new tax regime, with the result that they become less engaged with the benefits of offering a good pension,’ the NAPF said.

From April 2011 it is proposed that individuals earning more than £130,000 will not only have their usual tax relief on their pension contributions reduced, but they will also be taxed on the value of the contributions made by their employers.

The NAPF claims the changes could affect many people outside of the Government’s target income group and result in ‘unfair consequences’.

In its submission ahead of the 2010 Budget Report, the trade body has outlined a number of alternative measures which it says will simplify the system and avoid unjust effects.

It recommends reducing the value of the annual pension allowance of £245,000 a year to a range of between £45,000 and £60,000. It added that this would work with the grain of existing pensions tax policy, yet allow the Government to raise much-needed additional tax revenues.