High earners urged to maximise pension contributions

Alliance Trust Savings, one of the country's leading SIPP providers, has urged 50% rate taxpayers to consider maximising contributions to their pensions, following George Osborne's Budget announcement that the 50% tax rate is ‘temporary'.

The tax relief available on contributions makes pensions one of the most tax efficient savings vehicles for UK individuals. Currently, people receive tax relief on their pension contributions at their marginal rate. High earners who pay income tax at 50% could make a £50,000 contribution at a net cost to them of only £25,000. If the 50% tax rate was abolished a £50,000 contribution would cost £30,000, an increase cost of £5,000.

In the last two tax years individuals with an income in excess of £130,000 have only been able to receive tax relief on contributions up to a maximum of £30,000 each year. However, with the introduction of the revised annual allowance of £50,000 and the ability to carry forward any unused annual allowance from any of the three previous tax years, individuals will be able to contribute up to £200,000 into their pension pot in 2011/12. With tax relief available at 50%, this could be a saving of up to £20,000 when compared against relief at 40%.

Steve Latto, head of pensions at Alliance Trust Savings commented: "The announcement by the Chancellor that the 50% tax rate is ‘temporary' will have been welcomed by many high earners. However, these individuals may not realise that they could benefit by up to £20,000 by maximising pension contributions before the 50% tax rate disappears."