Andrew Tully, technical director at Canada Life reacts to calls by the Public Accounts Committee for a wide-scale review of pension tax relief. “The Budget later in the year is where there will be more focus around spending plans for future years. The Government may look again at pension tax relief although the difficulty in implementing change in a simple, straightforward manner continues to be a significant issue. The vast majority of tax relief is given to defined benefit schemes so any changes need to cover both DB & DC. Making changes in the DC market only is simply playing around the edges. In addition, pensions are already hugely complicated, so any changes need to simplify matters to help people better understand the benefits of saving in a pension.”
Commenting on speculation that the Government may be looking to review pension tax relief, James Riley President of the Society of Pension Professionals commented: “A c£40 billion, on the face of it, pensions tax-relief looks an attractive area to make savings given the state of the national purse. It’s therefore right and proper to fully review the system. However, under the headline amount the situation is more nuanced. And such a review needs to thorough and open minded.
“Significant amounts of pension tax relief relate to deficit contributions made by employers to make good past underpayments. Given the problems of the recent past with BHS, Carillion and Tata, and the subsequent focus on improving the security of pensions schemes, it seems inconceivable that the Government would want to disincentivise employer contributions to pension schemes. Also for many members, upfront tax-relief is simply a deferral of tax which they will pay when they come to draw their pensions. It would be wrong for pensions to become less tax efficient than other savings! The scandal around auto-enrolling low earners into net pay arrangements should be and can be remedied quickly. It is not in itself a reason to review the entire pensions tax relief.
“The risk with such a review is that it becomes a politically easy money grab which detrimentally affects the pensions savings of millions. Pensions savers will be paying for the pandemic for years to come out of their taxes. Care needs to be taken not to exacerbate the issue of inadequate saving for retirement which will ultimately create further pressure on the Nation’s finances.”
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