Pension relief cuts to slow payments

OVER ONE-FIFTH of pension fund members will either reduce or stop contributions if the Government cuts tax reliefs, according to a survey conducted for financial services group Axa.

The survey of 1,000 people found those most likely to halt contributions in such circumstances were people in the 55-64 age group. "In many cases, this age group should be looking to maximise contributions, not reduce them," said David Walls, director of Axa Financial.

The Government has said it will reduce relief on pension contributions to 33 per cent. Currently, higher rate taxpayers can claim relief at 41 per cent.

The Government argues that the 33 per cent level - pitched midway between the tax bands - will do more to encourage lower earners to save for their retirement. Currently, people on the standard rate get pension relief of just 20 per cent. However, the Axa survey found that just 18 per cent of those with no pension arrangements would start a pension because of the proposed rules.

Another financial services group, Standard Life, has proposed capping pension contributions rather than cutting reliefs as a more fair solution. It notes that the UK has capped pension funds at £1.8 million for relief purposes, while top earners in Ireland can build up a fund of €5.4 million, despite recent curbs.

It notes that higher rate taxpayers will pay 41 per cent when they draw down their pensions, meaning they are effectively taxed twice on the same money.

This, it says, will decimate pension savings.