Dave Books, Technical Director at Broadstone summarises that, “This is an incredibly difficult consultation to respond to as the consultation itself suggests that the government has strong views on the direction they want to travel; mainly to accelerate further the tax take from pensions. This will not only make it easier for pensioners to spend their pension benefits, but will simultaneously reduce the level of tax relief given to those saving for their retirement. This gives rise to a level of cynicism in the Government’s attitude to sustainable long term retirement savings. It does feel like the Government aren’t really consulting on whether tax relief acts as an incentive to save but rather how much tax relief they can remove before it reduces the level of pension saving.”
Broadstone has identified the following themes:
• Communication and education would greatly increase the incentive to save as people understand the cost saving.
• Broadstone believes the Exempt Exempt Taxed (EET) method is the best methodology for providing certainty for pension savings, the question to answer is the scope of the exemption during the “accumulation” phase.
• EET provides certainty on how the benefit will accumulate and the freedom and choice flexibilities mean that individuals can structure their affairs with taxation on their marginal rate, a clear way of taxing.
• A move to TEE (Taxed Exempt Exempt) will also create a greatly complicated system of “new” and “old” pension savings which will create confusion for savers at the time of retirement.
• The Government could move to a single tax relief rate for pension contributions to DC schemes. This rate could be set at 30% and act as an incentive for low/medium income earners to save. If the Government did this:
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The pension tax relief could also be set over prescribed periods, increased in “good” times and decreased in “bad” times giving control to the chancellor of the day – presumably after adjustments to other tax rates.
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However, the single tax relief method does not appear to work for DB and Broadstone would propose the existing Annual Allowance methodology remain.
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The Lifetime Allowance is an anachronism that no longer acts as a fair taxation of pension savings and should be removed via a phased increase, to a point where it is so large as to be meaningless to the vast majority.
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The Annual Allowance should be retained with the scope to perhaps reduce or increase its level in the future in the DB environment.
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There should be a level of restricted early access to 25% of DC savings before age 55, perhaps where hardship cannot be avoided.
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A range of measures should be introduced to make pension saving for the young more attractive, for example: Pension ISA – this would be a separate ISA allowance for those under 30 to take out and save into from net earnings.
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