Alistair Darling has dismissed strong calls to alter his proposed changes to tax relief on pensions for higher earners, incurring the wrath of the vast majority of the financial services community.

The new tax rules, announced at the Pre-Budget Report in December, will see the rate of relief for those earning £150,000 and over, where gross income includes all pension contributions, set at 50 per cent. This will be gradually reduced to 20 per cent, as gross income goes up and over £180,000 - the same as the basic-rate taxpayer. The restriction of relief is subject to an 'income floor' of £130,000.

Following yesterday's Budget announcement by the Chancellor, it was confirmed that the new regime would be put in place, possibly in the Finance Bill 2010, with the Treasury sticking to its line that "individuals on high incomes are benefiting disproportionately from the regime put in place on A-Day, at the expense of taxpayers more widely".

Although not surprising, confirmation of the cutting of relief still angered many in the pensions industry, who believe that the new rules will prove to be counter-productive due to their complexity, inefficiency and costly implementation.

John Lawson, head of pensions policy at Standard Life, said it had the "potential to turn into one of the most damaging acts against pensions in a generation".

"If the Government wants to achieve a fair distribution of pensions tax relief, there are other ways to go about it such as reducing the value of the annual allowance. This idea has near unanimous support across the industry yet the Treasury has declined to give it serious consideration," he said.

Lynda Whitney, a pensions consultant at Hewitt Associates, warned that Darling's decision would only add to difficulties for individuals and schemes who had to work under already extremely complex legislative requirements.

"Mr. Darling appears to have focused on closing loopholes, rather than responding to the genuine concerns of the pensions industry that some middle income earners could be caught out inadvertently," she said, referring to the possibility of workers whose redundancy packages go above £130,000 being affected by the changes.

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