The Confederation of British Industry will back proposals to adopt an annual allowance in its response to the Treasury consultation on higher rate tax relief.
Outlining the business lobbying organisation's four key recommendations, head of pensions policy Neil Carberry says the annual allowance was "clearly preferable" to Labour's "unworkable approach".
Carberry says: "In the forced choice between the two, we'll be backing the annual allowance. Clearly the key issue will be dealing with spikes in accrual, particularly from those with lots of accrual."
He added: "Of course, we would prefer full marginal rate tax relief for pension saving a la pre-2009, but the governments been pretty clear that's not going to happen given the fiscal situation, and that's understandable."
However, the CBI will resist the government's 'scheme pays' proposal - described by Carberry as a "nightmare".
In the consultation document it is suggested schemes, rather than individuals, should pick up the tax charge on accruals for people unable to fund it upfront. In return, the member's benefits would be cut.
Carberry says: "One of the proposals put forward by the government is scheme pays...now that's a nightmare, and frankly I've never been quite sure whether trustees would think it's in the interests of the wider membership to do that for one or two high earning individuals in the scheme."
The business lobbying organisation will instead call for an Individual Voluntary Arrangement (IVA) whereby the government comes to an agreement with the individual.
The CBI will also present a case for overriding legislation to allow members to ‘decouple' pensionable pay from pay - a move Carberry said would prevent "spikes" in accrual by allowing pensionable pay to increase over a number of tax years.
Furthermore, the CBI will request a two-year ‘carry back/carry forward', preventing a potential anomaly where scheme members are hit with a huge one-off tax charge if they receive a pay rise.
The Association for British Insurers (ABI), meanwhile, called for an annual allowance of £40,000. However, the insurance industry representative rejected "complex" proposals to reduce the lifetime allowance or cap pensions tax relief at 40%.
Acting director-general Maggie Craig says: "The government are right to simplify the pension tax system. It will help consumers understand the benefits of saving, and help tackle the chronic under-saving we face.
"However, it is crucial that this good work is not undone by setting an annual limit at an unworkably low level. It needs to work for a range of individual circumstances so that consumers can have the greatest control over how they save towards their retirement."
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