The Financial Services Specialists

The reduction in higher rate tax relief for those earning in excess of £150,000 p.a. from April 2011, tapering to basic rate level for those earning £180,000, has had an immediate and damaging effect on UK insurance company shares.

Whilst not the feared, across the board removal of higher rate tax relief, there is every reason to be concerned about the impact on pension schemes, both corporate and individual.  With a quarter of pension tax relief going to just 1.5% of pension savers, the industry had anticipated that this would be a Government target.  In the midst of fat cat pension rows there is likely to be popular support for the move.

But it also comes at a time when insurers are troubled by capital adequacy concerns and when many financial intermediaries are making losses.  Pension savers have of course also seen their pension pots take a significant hit and the reduction in relief will obviously make the potential for recovery all the harder for the affected group.

The move may however result in further collateral damage for the concept of saving via pensions in general.  It certainly undermines the promises made when pensions simplification was implemented - stability for 30 years; the rich capped by lifetime allowances etc...  The calculators will be out already as pension managers and trustees are questioned about salary sacrifice schemes.

Whether the more general concern that this signals that saving is not encouraged is realised remains to be seen but once again there is nothing so constant as change and everyone will need to be looking at their financial plans again as a result of this Budget.