Simon Nicol, pension principal at Thomas Miller Investment said he believes the current annual allowance taper should be axed.
“A good tax policy must be certain and fair. The annual allowance taper for high earners, under the current system, is neither,” he said.
The call comes as UK chancellor Philip Hammond begins the final preparations for next month’s Autumn statement where he will make his first formal announcement on the government’s new economic and fiscal policy since taking over from George Osborne after the Brexit vote.
Low key statement
Hammond has already indicated that his focus in the statement, due on 23 November, will be mainly on “modest, rapidly deliverable investments” on public infrastructure to help the economy.
In fact the Financial Times has speculated that the next Autumn statement may be Hammond’s last as he seeks to reign back the role of Treasury and focus all government spending and tax decisions on the annual Spring budget, usually held in late March.
However, while lowering expectations for any major announcements, the government has been active in winding back some of Osborne’s pet projects and tax moves.
Government moves
Last week the secondary annuity market was suddenly scrapped and, on the weekend, it emerged that the Treasury was considering watering down planned non-dom reforms due to come into effect next April.
Now comes a call to end the new and quite tough tax allowance taper which affects individuals with net incomes (excluding pension contributions) of over £110,000 ($134,492, €123,532) that only came into effect in April this year.
The taper reduces the annual tax free allowance, currently set at £40,000, by £1 for every £2 that the net income exceeds £110,000 up to a maximum reduction of £30,000, leaving a tax free contribution of just £10,000 for those on very high incomes.
Unfair rule
TMI’s Nicol argues the main reason to scrap the taper rule is that incomes can vary from year to year especially when bonuses are taken into account, making it difficult to predict the tax consequences for any fixed pension contribution.
“The government may wish to restrict pension contributions but if they do, they should do it in a manner that pension contributors can know at the start of the year what they can safely contribute without the threat of a double tax charge hanging over them.
“At Thomas Miller Investment, we support axing the annual allowance taper. Saving for retirement surely should be encouraged, not subject to a lottery of unforeseeable tax charges.
“The taper system and its unpredictable outcomes effectively exclude large numbers of workers from the pension system,” Nicol said.
