ABI accuses Govt over Budget tax relief measures

Government moves to cut tax relief on the pension contributions of high earners will further undermine trust in the system, the Association of British Insurers (ABI) warns.

ABI director of life and savings Maggie Craig told a House of Lords sub-committee the plan would damage the industry and add an extra layer of complexity to pensions - in direct contradiction of the simplification measures introduced in 2006.

From April 2011 the government will cut tax relief on pension contributions for people earning more than £150,000, gradually tapering it from 40% to 20%.

Craig told the House of Lords Affairs Finance Bill sub-committee on the Budget the plan would affect only a small number of very high earners but the changes breached the principle that people who save for their retirement will get tax relief.

She said: "Tax relief exists as compensation for responsible people who agree to defer some of their income now, so that they are less reliant on the public purse in retirement.

"The government and the main opposition parties must not undermine the principle of tax relief on pension savings any further by continuing to remove tax relief, either now or in the future.

"To do so would seriously damage public trust and confidence in the UK's pension system. That would mean less saving overall, and the prospect of a massively increased public bill for looking after people in retirement."

National Association of Pension Funds chief executive Joanne Segars said the changes would hit occupational provision.

She told the committee: "There is a risk that the proposed changes to pensions tax relief could destabilise workplace pensions at a time when they are already under pressure. If senior executives can no longer fully benefit from pension saving, they may disengage from workplace pensions and be less inclined to provide high value pensions for those on average incomes."

She also questioned whether the changes would actually bring in £3bn projected tax revenue.

"We think the government should maintain an open mind on whether or not to go ahead with the measures until after it has undertaken a full cost benefit analysis and options appraisal," she added.