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Has Alistair Darling given himself a pensions headache?

While it was most definitely not there intention it looks as though the UK government have given themselves a potential pensions headache in the future with the announcement of the 45% tax band to come in around 2011. The new tax band is unlikely to raise significant income for the Treasury, current estimates suggest around £5 billion a year, but if as expected many high earners decide to increase their pension pots the cost to the Treasury will increase.

As many people will be aware, contributions to your pension fund are free of tax therefore high earners who increase their pension contributions will be able to reclaim tax on their net pension fund payments. Many accountants are suggesting this is the way around paying excessive tax on UK earnings and possibly giving the UK government a further headache.

Each and every government in the modern era has been faced with a massive potential problem in the area of pensions as people live longer, the UK population continues to grow and the state budget becomes ever more stretched. Nobody seems able or willing to tackle the problem head-on much preferring to leave it to the next government as D-Day gets ever closer for the UK pensions industry.

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