The Chancellor’s decision to increase the higher rate personal allowance to £50,000 could see some employees’ government top-up on their pension contributions halved.
The Chancellor has also increased the personal tax allowance to £12,500 from April 2019, which will ease the burden on employees when a planned increase to the auto-enrolment minimum contribution to 8 per cent comes into force next April.
Aegon pensions director, Steven Cameron, noted that the increased to the higher rate tax threshold to £50,000 from April 2019, will mean fewer people are higher rate taxpayers with some moving to be basic rate taxpayers.
“While few will object to this, it does affect pension saving as individuals receive tax relief, or a government top-up, based on their highest marginal income tax rate of 20 per cent, 40 per cent or 45 per cent. For those moving down into the basic rate tax bracket, their government top-up is halved meaning less may be going into their pension,” he said.
“The higher rate tax threshold between Scotland and the rest of the UK continues to diverge, and if the Scottish threshold remains at its current level of £43,000, it will be £7,000 behind the rest of the UK. This, along with the higher rates of Scottish income tax, means that more people on the same earnings but resident in different parts of the UK will not only pay different levels of income tax but also receive different pension tax relief on their contributions.”