The Association of Taxation Technicians (ATT) has cautioned the Chancellor George Osborne against making changes to pensions in the Budget that would further complicate the regime and may risk alienating confused savers.
The ATT expressed its concerns ahead of the Budget (March 16) when the Government will respond to last year’s consultation about changes to the taxation of pensions.
Michael Steed, President of the ATT, commented:
“It is crucial that any further changes to the pensions system actually leads to a simplification of the regime if it is to achieve the Government’s stated aim of incentivising more people to save towards retirement.
“What concerns us is the potential for greater confusion among the public because of the continual changes to the existing regime; for example from April 2016 we have a new regime to tax proceeds of pension funds in the event of death before and after 75, a new reduced lifetime allowance and a new cap on contributions (a reduced annual allowance) for higher earners. It is less than a year since the Government announced the highly publicised ‘pension freedoms’1 and auto-enrolment is still bedding in. There is no end to the changes and it is a real concern that the impact on people’s thinking and trust in saving for retirement will be completely contrary to the Government’s aim to incentivise them to save more.
“A period of consistency is what is needed and we ask the Chancellor to ensure that any changes in the Budget are absolutely necessary because another upheaval for the pensions industry to accommodate would be difficult but, more important, it would be perceived negatively by investors who are already in the process of losing confidence in pension savings.”
The ATT has dismissed the idea that replacing tax relief on pension contributions with tax exemption given instead when pension income is eventually drawn, would be a workable solution2.
Michael Steed said:
“Initially, removing tax relief on pension contributions might help to boost the Treasury coffers, but we do not see how it would encourage people to save more. Many young people already struggle to set aside any money for pension savings. Without the incentive of tax relief on those contributions less and less will choose to provide for their retirement, especially when faced with competing financial burdens on their income, such as student loan repayments, getting onto the housing market or starting a family.
“What may be better would be for the Government to add some sort of terminal bonus to such a pot, in the same way as the new Help To Buy ISA operates ”
Notes for editors
- The ‘pension freedoms’ reforms abolish the effective requirement to buy an annuity, and give people much greater freedom over how they access their pension savings.
- The ATT’s response to the ‘Strengthening the incentive to save; a consultation on pensions tax relief’ can read here.