Tax proposals could hit average wage earners

There is growing concern that the government’s proposals to restrict pensions tax relief could have unwanted consequences for many ordinary workers.

It is widely expected that the coalition will lower the annual pension allowance from £225,000 to £30,000-£45,000 as part of its review.

While the new regulations would prevent high-earners from abusing the system, it is thought that early retirement, ill-health, promotions or redundancy could be a problem for those with earnings slightly above average under the new regime.

The Treasury has appealed for suggestions which could help those affected avoid unnecessary tax charges when the changes come into effect.

Dr Deborah Cooper, Head of Mercer’s Retirement Research Group, said her organisation is in favour of measures to deter tax avoidance, but added that ordinary workers could be inadvertently hit.

"We support the rationale behind HM Treasury’s plans to restrict the tax relief available on pension saving," she said.

"However, the current proposals could restrict the development of flexible working practices in the UK as well as having severe financial implications for a wide range of employees and not just those who are the target of this tax."