A financial planning specialist has criticised government plans to restrict tax relief on pension contributions, claiming that it will unfairly punish the country's small business owners.
 
HM Revenue and Customs has issued a consultation document on the proposed reforms to pension contributions. But Eric Norman-Walker, Managing Director of Menzies Wealth Management, says that the proposal favours people who have been in employment all their lives, at the expense of those who run their own businesses.

He argues that retirement planning for business owners is often different from that of people who are employees. People in employment regularly set aside income to make many small pension contributions over their working lives. Business owners, on the other hand, often have to direct all their resources into building the business, and only when it is well established is there scope for retirement planning. They often have to catch up by making a few large contributions in the years prior to retirement. Under the new proposal, these contributions would be heavily taxed.

"These proposals show no understanding of the pressures that small business owners face,” said Norman-Walker. "Many of my clients have spent ten to twenty years building up their businesses, providing local employment and inward investment whilst they pay down their corporate and personal debts. Only in later life do they have the opportunity to turn their attentions to funding their pension schemes.”

He argues that this is not a tax on the amount someone pays into a pension fund but on the timing of those payments.

He said: “The proposed tax-free contributions limit of £30,000 a year is more than enough for people who are employees, but is far too low if you are a business owner preparing a retirement and succession plan over the next few years. They will simply not have enough time to accumulate a pension fund that will support them in retirement."

Menzies Wealth Management has responded to the HMRC's discussion document. The consultation period remains open until 27 August and responses can be sent to pensionstax@hmtreasury.gsi.gov.uk.