Imitation is the sincerest form of flattery (2)

From the BBC, 14 October 2010:

The amount of tax-free income that savers can put into pensions has been sharply restricted by the government. The annual limit will be reduced from £255,000 to £50,000 in April...

The Treasury hopes the changes will eventually save it more than £4bn a year - which could be used to reduce the budget deficit...The coalition government began a consultation after the Labour government announced plans to gradually reduce the tax relief available on pension contributions for people earning more than £150,000 to just 20%, despite the fact that these people pay income tax of 50%...*

The government said that changing the allowance to £50,000 would affect 100,000 pension savers a year**, and 80% of those had incomes of more than £100,000 a year...

Mark Hoban, financial secretary to the Treasury, said the government had taken a "tough but fair" decision. "We have abandoned the previous government's complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes," he said.

From UKIP's Pension Policy Paper, April 2010:

The total cost of the various tax reliefs for personal and employer pension contributions is around £34 billion per annum. The basic reason for giving tax relief for pensions contributions is to help alleviate poverty in old age by encouraging and enabling people to save for their own retirement.

The system of reliefs that has developed over the decades appears to have lost sight of these basic aims – 55% of the value of the tax reliefs now accrues to higher rate taxpayers - and the fact that the overall pool of investments in which pension funds and annuity providers can invest is limited...

UKIP concludes that tax relief can be far better focussed on alleviating poverty (rather than allowing already wealthy individuals to become even wealthier) if:

• The upper limit for tax relievable contributions were reduced from £235,000 to £10,000 per annum

• Tax relief were be harmonised at 20% of gross contributions (the same rate at which pensions will be taxed).

• The dividend tax credit of 20% for UK shares owned by pension funds were tobe reinstated.

* UKIP didn't see the 50% tip top tax rate coming and, for the avoidance of doubt, proposed a flat income tax rate of 31% on all income (to replace current basic rate tax 20% and Employees NIC of 11%).

** Reality check: 'more than' £4 billion divided by 100,000 'pension savers' = 'more than' £40,000 per person per annum. Wouldn't it be better to scrap the tip top tax rate of 50%, which raises rather less than 'more than' £4 billion?