Retirement plans for millions of small business owners could be ruined following news that the government has proposed capping pension contributions in the year they retire.
If the proposals go ahead, annual contributions will be capped at between £30,000 and £45,000 a year, as opposed to the current £255,000. However, plans to restrict tax relief for the very highest earners, suggested by the previous government, would also be scrapped.
A concession allowing unrestricted pension contributions in the year of retirement is also to be removed. This concession was aimed at helping entrepreneurs and small business owners whose wealth is often tied up in their business.
Small business campaigners accused the Government of making them pay the price of protecting millionaires' pensions.
Stephen Alambritis, spokesman for the Federation of Small Business, said,”[Small business owners] tend to plough money back into their businesses rather than contributing to their pension. For some, the choice might be making someone redundant or saving into a pension.
“They then try to make up for lost time at retirement. We would urge the Government not to make this change,” he added.
A financial adviser commented on how much harder it would make it for small business people to build a pension at the last minute. He added that the whole emphasis of the Government's changes seems to be towards building a pension gradually rather than making large, occasional lump sum contributions.
Many small business owners are only able to make occasional lump sum contributions towards their pensions as they trade one enterprise for another or when they retire and sell up.
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