“Royal London welcomes the announcement in the Budget today of a Green Paper which will review the tax treatment of pensions. We hope that the outcome of the review will be a settlement to which all those involved in pensions can sign up. We hope that the resultant consensus will last a generation or more and certainly longer than the next Government.
It is important that during the period of the review Government maintains confidence in automatic enrolment which is already transforming the savings habits of thousands and particularly those starting out in work. It is also vital that the distinction between short-term savings in ISAs and long-term savings in pensions is preserved.
There are a number of simple tests by which any measures emerging from a Review should be measured. These include:
- Do the proposals preserve the fiscal neutrality of long term saving? So everyone is able to continue to make meaningful contributions to their pension pots without the penalty of paying income tax twice.
- Are the positive incentives to save within the tax relief system shifted away from people on higher incomes to those paying lower rates of income tax? These are the people who would benefit the most from a tax incentive and assistance to save.
- Do the proposals remove the need for a “lifetime allowance”? So no longer preventing people from using their pensions to save for the full range of later life needs, such as long term care and inheritance.
In the current climate where the arguments for tax relief at a saver’s marginal rate of tax have been largely lost a flat single rate of tax relief, around 33%, looks like a viable way to achieve a good balance. However the vast majority of tax relief still goes to savers in DB schemes and before decisions are made we must look at the impacts on these arrangements before a final settlement is reached.”
Hope the comments are of interest…and please do get in touch with me or Gareth if you have any further questions, we are able to help further
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