There could be a damaging impact on pension retirement funds if pension tax for higher earners is cut.

From April 2011, Alistair Darling said that the government would gradually cut tax relief on pension contributions for people earning more than £150,000 from 40% to 20%. But this has caused the Association of British Insurers to warn of the potential negative effects on pension saving levels and public trust and confidence in the schemes.

The ABI have also warned that this will make several pensions very complicated to understand going against the ‘A-Day’ regulations introduced to streamline pensions and make the tax regime simpler.

Although only a small number of high earners should be affected, the ABI have warned that the Government could be seen to be breaching the principle under which people have saved and receive tax relief. Overall there would be less in the way of savings and more people looking for help financially after retirement.

Many corporate pensions are already feeling the pinch and there are concerns that changes to pension tax relief will put more company pensions under pressure. Senior Executives may decide that because they can no longer fully benefit from company pension schemes that they will pull out of these pensions and be less likely to offer such high value schemes to those on average wages.

Time is running out for some schemes and so the Government is going to have to think fast to avoid public uproar regarding pensions.