Around 125,000 savers lost out when the annual allowance limit was cut from £50,000 to £40,000 in the 2014/15 tax year, according to government documents.
Royal London policy director and former pensions minister Steve Webb pointed to the findings this morning in an archived government note as the firm launched a new policy paper on pensions tax relief. ahead of the Budget later this month.
The firm argues that further cuts to the annual allowance are the most likely change this year, after six similar tax relief cuts in recent years but no fundamental shake-up in the way the system operates.
The paper puts the likelihood of an across-the-board annual allowance cut at eight out of 10, the same likelihood as a reduction in the threshold for the annual allowance taper for high earners.
The policy paper reads: “In a rare break with recent tradition, we were pleased that the 2017 Budgets (in Spring and Autumn) made no major changes to pension tax relief. But, for reasons outlined in this paper, we think that there is a high likelihood that the 2018 Budget will return to type, cutting the overall level of relief and making the system still more complex.”
The likelihood of a cut to the lifetime allowance is rated four out of 10, however, a cut in the money purchase annual allowance at three out of 10, and a new cap on tax free lump sums at two out of ten.
Writing in a LinkedIn post this morning, Royal London chief executive Phil Loney also accused politicians of talking “drivel” about pensions amid further speculation in national media over a potential cut to tax relief this weekend.
Loney wrote: “Tax relief is not a bonus/incentive. It ensures that we don’t pay income tax twice on money saved for retirement. Without it saving would incur a big tax penalty and nobody would save.”