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Last Updated: Tuesday, 9 March, 2004, 12:31 GMT
1.4m pensions cap to hit 10,000
Inland Revenue headquarters in London
Inland Revenue rules are being simplified
Around 10,000 people could be affected by the new 1.4m lifetime limit on pensions savings, the National Audit Office has said.

It was asked by the Chancellor in the pre-Budget report to estimate the number of people who could be affected. The government is proposing a 1.4m lifetime cap on pensions saving that can benefit from tax relief.

It argued that only 5,000 people would be hit by the new measure, but others warned that 600,000 would be affected.

Executive pensions

The report broadly vindicates the Chancellor's view that the new restriction would only affect a limited number of people.

The National Audit Office said those affected most by the proposed lifetime allowance were likely to be high earners who have not changed their jobs since 1989.

It said the government's estimate of 5,000 people being affected was at the "lower end" of what was a reasonable estimate.

The government will announce in the Budget if it intends to proceed with the plans, which would take effect from April 2005.

Under the proposals, the current complex system of earnings caps will be replaced with a single lifetime limit of 1.4m.

Any savings above 1.4m cap would then be taxed at around 55%.

Plans to simplify the pensions taxation regime have been warmly welcomed.

But some groups have voiced concern that capping savings at 1.4m could be a disincentive for higher earners to save.

KPMG has said the number of people who will be hit is much higher, with at least 50,000 affected, while other estimates have said up to 600,000 could be affected.

With the closure of many company pension schemes, and the government's refusal to offer retrospective compensation for schemes which were wound up when companies went into liquidation, the pension issue has become highly politically charged.

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