The pensions and insurance giant Aviva has warned the government against raiding private pensions to fill a £22 billion black hole in the nation’s finances.
It is rumoured that the Chancellor will reduce tax relief available to higher earners on their pension contributions in her Budget in October.
Currently, a basic rate taxpayer gets 20per cent tax relief on pension contributions, which means every £100 they put into a scheme costs them £80.
However, someone earning between £50,271 to £125,140 and paying 40 percent tax also gets more generous tax relief on pension contributions at this same rate. This means every £100 put into a pension scheme costs them £60.
And people paid over £125,140 get tax relief at 45 percent on pension contributions, which means paying £100 into a scheme costs them £55.
There are suggestions the tax relief on pension contributions could be equalised across all workers at 30 percent to make the system fairer.
This would mean helping the vast majority of basic rate taxpayers boost the value of their pension pots, while taking some money away from better paid people.
The Institute for Fiscal Studies has estimated that such a change could generate a net saving to the government worth around £2.7 billion a year.
However, the boss of pensions and insurance giant Aviva, Amanda Blanc, has warned against changes that will discourage higher earners from contributing to pension schemes.
Speaking as Aviva published half-year results, she warned that Rachel Reeves should think again before doing so.
She stressed the importance of encouraging workers to save into pensions – of which Aviva is a major provider – so they are less reliant on the State.
Miss Blanc also argued that boosting pension savings will also mean more money for investment in the UK.
She added: “On pensions tax relief I think we would just caution that if you really want people to save for the long-term – pensions are a long-term game, they are not something that you do something with today and don’t have consequences in five, ten, 15, 20 years’ time.
“All we would say is that the Government thinks about the long-term impact.”
Analysis by investment experts AJ Bell has suggested that it could mean millions of higher-rate taxpayers may have to make an extra four years of pension contributions to make up for the loss in tax relief.
Miss Blanc said: “All we would say about anything that happens is that any government thinks about long-term impacts of policies.”
She was speaking as Aviva posted better than expected first-half results, which showed operating profits climbed by 14 percent year-on-year to £875 million in the six months to the end of June, surpassing the £830 million that had been forecast by City analysts.
The FTSE 100-listed Aviva, which also has a big business in Canada, was boosted partly by rising general insurance premiums in Britain and Ireland, which were up 18 percent to £3.8 billion.
Insurers have imposed big increases in the cost of motor and home cover in the last two years to offset the impact of inflation, which has pushed up the cost of handling claims and hit the industry’s profitability.
The sharp rise in the price of policies has led to criticism that insurers are taking advantage of the inflationary environment to profit unfairly from customers. However, Blanc insisted: “I don’t think that the industry can be accused of profiteering.”
She was upbeat on the outlook for the UK, in a boost for the government, which has placed reviving economic growth at the heart of its agenda.
“We have spoken to over 200 investors so far this year, we’ve been all over the world,” she said. “The feedback from investors is that they’re way more interested in the UK now than they were two years ago.”
