A system to encourage basic-rate taxpayers to start savingby Craig Mackinlay / March 1, 2016 / Leave a comment
The tinkering started in 1997, when Gordon Brown stopped pension schemes from reclaiming tax credit on dividends. A 2006 paper for the Institute of Actuaries estimated that this move wiped £150bn from the value of retirement funds. It was the beginning of the end for private-sector final salary schemes, which companies now deem too costly.
Recent changes have affected higher-rate taxpayers more than others. Reductions since 2010 to the lifetime allowance (the amount you can accumulate in pension funds without incurring extra tax) and now the annual allowance (the amount that you can put each year and still get tax relief) may save the public purse billions of pounds but they have made the system more opaque and hard to understand. However, restrictions in last July’s Budget on contributions by those earning £150,000 and above are to be balanced by a relaxation of the inheritance tax rules on family homes.
All this flux has left those he…