A cap on annual contributions might be a more equitable way of reducing the percentage of tax that benefits the highest earners, an influential House of Commons committee says.
The Treasury Select Committee says Government plans to restrict higher-rate tax relief on pension contributions for people with incomes over £150,000 from April 2011 was a "departure" from long-standing principles.
And it said the government aim of reducing the amount of pensions tax relief going to higher earners could be achieved in a simpler way.
In its report on the Budget, the committee said: "We note that this budget marks a departure from the long-standing principle that tax relief for pension contributions should be given at an individual's highest marginal rate.
"We urge the Treasury to monitor the effect of this change on pension savings and to keep under review the possibility that a cap on annual contributions might be a more equitable way of reducing the percentage of tax relief that benefits the highest earners.
The committee's stance has been backed by consultants.
Hymans Robertson partner Brian Nimmo said: "[The Treasury Select Committee] is clearly heeding the warnings from the pensions industry.
"The Chancellor's plan to introduce a large tax disincentive for higher earners paying into a pension scheme will have unintended consequences for the wider population - those who were not intended to suffer from these changes will be the ones who will suffer most. It is clear that the Treasury has not thought this measure through.
"In effect, the Chancellor's proposal is a 'double-whammy'. Firstly, higher earners' pension contributions and retirement income will now be taxed at higher rates. Secondly, employer contributions will now be taxed as a benefit in kind.
"This will mean an overall tax charge of more than 100% on individual contributions. The net result will be to drive higher earners from pension schemes because the disincentives for staying are simply too high."
He added: "In the end, it is lower earners who will suffer - those earning far less than £150,000 - since key company decision makers are less likely to keep a pension scheme open if they themselves are not paying into it."
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