Osborne could slash pension tax breaks this month

A raft of new pension changes has led to high-rate taxpayers rushing to make the most of their retirement savings

Osborne is woried about pensions hole (PA)

Pension investors are set to give the Chancellor a massive headache by putting a £6bn hole in the Treasury’s tax plans – and he could respond this month by slashing tax breaks on retirement savings.

The warning comes from Hargreaves Lansdown which reckons that higher rate and top rate taxpayers have increased their contributions by an average of 40 per cent in the current tax year.

“We expect a surge in activity ahead of November’s Spending Review,” said the firm’s pension expert Tom McPhail. “We could see an extra £6bn in tax relief being claimed by higher earners this year.”

Osborne has already mentioned intentions to change pension tax breaks in next Year’s Budget but he could yet fast forward the plans, McPhail warns.

The green paper review of pension taxation launched in this summer’s Budget follows a barrage of pension policy initiatives:

· Annual Allowance taper, set to restrict tax relief for those earning over £150,000 (due April 2016)

· Lifetime Allowance cut to £1 million (also due April 2016)

· Pension Freedoms give more access to pensions and better tax treatment on death

· Auto-enrolment is sweeping millions more savers into pensions

· State pension reform (April 2016)

· Spending cuts and government intention to balance budget

· Annual Allowance reset in Budget to phase out Pension Input Periods

“In the context of these changes, some of which will already directly affect higher earners’ pension tax relief, it would be naïve to expect that there wouldn’t be a surge in pension saving this year,” Tom McPhail said.