Financial Secretary to the Treasury, Mark Hoban MP, announced yesterday that the annual allowance for tax-free pension savings will be reduced from £255,000 to £50,000 with effect from April 2011. The lifetime allowance will also be cut from £1.8m to £1.5m with effect from April 2012.
The changes are introduced following an informal consultation conducted throughout the summer. They mark an abandonment of the previous government’s proposals under the Finance Act 2010 to gradually reduce the tax relief available on pension contributions for those earning more than £150,000 to 20%.
The Coalition government has said that this new restriction on the amount of tax-free income that savers can put in pensions will target ‘those who make the most significant pension savings’. It will help to raise £4bn a year, which will go towards reducing the current Budget deficit.