But watch out as pensions stung

SAVERS are set to get slightly less tax relief on pensions from April.

Basic rate taxpayers receive tax relief at 20 per cent, which is their current income tax rate. However, from April the basic rate will fall to 19 per cent.

The income tax cut is, of course, largely good news as workers will keep more of what they earn. But the fallout is that pension tax relief will also drop to 19 per cent. Helen

Morrissey, senior pensions analyst at investing platform Hargreaves Lansdown, says: ‘Instead of getting an extra £20 for every £80 you contribute, you will now only get £19 for every £81.’

While the one percentage point cut to tax relief to 19 per cent may sound small, it can add up over years of pension saving.

Consultancy Barnett Waddingham has calculated that a 40-year-old basic-rate taxpayer earning £37,500 and contributing 12 per cent of their pay into a pension is likely to find their pot is worth £5,700 less when they come to retire as a result of the change. This amounts to a reduction in income at retirement of about £360 a year.

People who are currently additional rate taxpayers will find that their pensions tax relief also falls in line with their income tax level, from 45 per cent to 40 per cent. This will mean that instead of getting an extra £45 for every £55 they contribute, they will now get £40 for every £60.

The changes only tax place from the new tax year in April. Therefore, savers who can afford to do so could benefit from putting more money into their pensions before then to take advantage of the more generous rates.