§ Mr. George OsborneTo ask the Chancellor of the Exchequer what he estimates the cost would be to the Exchequer under its proposed reform of pension taxation of imposing no annual limit on pension savings in the year 2006–07 and each of the subsequent three years. [172126]
§ Ruth KellyThe annual allowance protects against large payments being made into a tax privileged pension scheme that might then be removed from the scheme without the imposition of tax. So there would therefore 481W be a cost attached to having no annual allowance under the proposed simplified pension regime—even if the lifetime allowance were retained.
The size of this cost depends upon behavioural effects and any estimate of cost would inevitably be very broad-brush. However, given the potential additional pension savings from those in the top 1 per cent. of the earnings distribution, plus the possibility of the additional scope for tax avoidance or evasion, the cost to the Exchequer could be up to several hundred million pounds over this period.