Using a Freedom of Information request, the newspaper found that in tax year 2009-10 – the year before Osborne became chancellor – savers paid around £25m ($34.6m, €31.8m) in tax on the pensions for breaching the LTA.
Since then the government has cut the maximum that can be saved in a pension before attracting a punishing 55% tax rate three times, bringing it down from £1.8m to £1.25m. The LTA is set to drop to £1.0m in April.
The newspaper revealed that as a result the amount of tax paid by savers in the 2014-15 financial year had now risen to £94.2m from the £25m five years ago.
The Treasury‘s own figures show that it expects to make around £2.0bn over the next five years from the reduction in the LTA.
Widening net
This has been described by Hawksmoor Investment Management as Osborne’s strategy of “funding of the government’s inability to live within its means by plundering its future”.
“The one thing the country needs above all else is encouragement to save, a means of being able to afford a standard of independent living in retirement. How we achieve this is open to innumerable interpretations, none of which include taxing pensions to oblivion,” the company said in its latest Innovations report.
Alex Davies, chief executive of Wealth Club, a high net worth investment service said the cut in the LTA to £1.0m along with the planned drop in the additional rate taxpayers’ pension allowance from £40,000 to as little as £10,000 would affect a surprisingly large number of people.
“Someone with a successful career and a final salary pension paying annual income of around £50,000 may be close to the reduced lifetime allowance. If they keep accumulating benefits, they won’t get a gold watch at retirement, but a hefty 55% tax charge,” he said.
“Next in the firing line may well be higher-rate taxpayers – 4.65m people. Mr Osborne is widely expected to abolish higher-rate pension tax relief and introduce a flat rate – 25% or 33% – on budget day, 16 March,” Davies said.
