The 2009 Budget has presented high earners with further opportunities to make use of salary sacrifice to boost their pension savings, after Chancellor Alastair Darling announced that those earning over £100,000 will see their personal tax allowance either reduced or simply taken away.

From April 2010, those earning a six figure salary will see their personal allowance reduced by £1 for every £2 of income above the threshold, while those earning above £112,590 will receive no personal allowance at all.

Andrew Tully, senior pensions policy manager at Standard Life, said that putting in place a salary or bonus sacrifice arrangement to fund a pension would now likely prove to be an even more popular option for those earning above £100,000.

Darling's headline proposal on pensions - to hit individuals with incomes of over £150,000 by restricting their tax relief on scheme contributions - has angered many in the industry due to it adding further complication and sending out the wrong message on saving.

The removal of tax relief, pencilled in for April 2011, is still subject to consultation, but could see the industry faced with significant additional administrative costs.

Paul Evans, CEO at AXA Life, said that the Chancellor's decision was not necessarily the best option for the already stretched systems."The cost of implementing tiered tax changes into the current environment rides a coach and horses through the concept of pensions simplification," he complained.

Richard Lambert, director-general at the Confederation of British Industry, was equally dismissive of the idea: "Changing the higher-rate tax relief on pensions weakens incentives to save for retirement and is yet another change to a system which really needs stability," he said.

Pat Wynne from Xafinity Consulting argued that the cut would be a negative message, coming at a time when the Government should be encouraging long-term saving. "The announcement could be seen by the general public as a first step in abolishing pension tax relief entirely, or more simply as yet another anti-pensions message," he said.

- Pensions Age April 2009

Share Story: