The government is planning an overhaul of the way it grants tax relief on pensions which will cost the pension industry, employers and the government "hundreds of millions", an expert has warned.
David Heaton, employee benefits partner at Baker Tilly, said the government has been "softening up" the public ready for a blow to higher rate pension relief for some time.
He said Her Majesty's Revenue and Customs (HMRC) published figures last week claiming that pensions tax relief has increased by 87% over the past decade to £33bn last year.
However, he said the figures were published out of context to make pension relief look more expensive.
"It is not surprising that the amount of tax relief has gone up with 33% more people now higher rate tax payers," he said.
"There are also two million more people in work than ten years ago, and the government plans to freeze the 40% income tax bracket in this Budget so there will be even more people entering this cohort."
The figures, published whilst ministers are prevented from speaking about public spending before the Budget due to Purdah rules, have been made public in preparation for a consultation on how to limit pensions tax relief, Heaton said.
"There will be a consultation on how to limit higher rate relief."
"The government cannot do anything straight away because employers, pension providers and HMRC will have to rewrite their IT systems, which will cost hundreds of millions of pounds."
Heaton added the government itself cannot be sure of how much it is spending on tax relief or how effective the latest £50,000 annual allowance (AA) is.
This is because although the reform was introduced in 2010, HMRC has allowed savers to use "carry forward", where they can collect together unused tax relief for the past three years to plough money into their pensions without breaking the AA, Heaton said.
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