“A year ago, I called on the next Government to undertake a thorough review of pension taxation. And in March this year, ahead of the election, we published a paper highlighting some of the challenges of the current pension tax regime. As you know, the Chancellor responded and in the Summer Budget we got exactly the review we had called for. Now you are probably saying, “Be careful what you wish for!”
“Unfortunately, at the same time as announcing the review, the Chancellor introduced further complexity in the form of the tapered Annual Allowance. I, like many of my colleagues in the ACA, are now trying to help clients through the challenges of implementing a pensions policy whilst not knowing how much their employees can save each tax year until the very end of the same tax year. Adding further short-term complexity was not what we needed!”
“Is there cause for optimism in pensions? I think we stand at a point of inflexion.
“To date, auto-enrolment has done more to bring employees into pensions saving than the many corporate communication programmes that have been run in the past. Yes, there is the challenge of rolling out auto-enrolment to small and micro employees and the concern that opt out rates might rise as contributions increase, but the Government has the opportunity to build on the success to date by setting out its policy as to how it can get those now auto-enrolled to save more. I don’t believe Government should duck out of a firm lead in this area.
“Last month the ACA put forward its own suggestions – the removal of the lower qualifying earnings deductible so that contributions are paid on all earnings up to the upper qualifying earnings limit with a consequent reduction in the threshold for being brought into auto-enrolment for the low paid and particularly women, any of whom are currently excluded.
“We also called for contributions to rise from the present 8% to 16% over time and I fully accept that there may need to be tapering for those auto-enrolled for the first time to avoid sudden significant reductions in take home pay. As now, employees could opt out or opt for reduced contributions but this seems to us one way of guiding employees to make the right sort of level of contributions.
“In our pre-election manifesto, we called for more financial encouragement to employers to provide or facilitate financial education – not just at retirement but when starting work and at critical points in the employees working life.
“Working patterns and social norms are changing and the pace of change seems to be ever increasing. And that is why we need a stable financial framework for savings in retirement. In our March paper we set out the many difficulties with the current system which because of our progressive tax system inevitably mean that tax incentives are focused on the better off. We therefore end up with a system that is over complex because from a politician’s perspective it neither provides the right level of financial incentive for individuals or the desired social policy.
“But each alternative that we have looked at - flat rate, Pension ISA or further reduced Allowances brings new challenges. At the ACA we have no preference for a particular new tax regime provided incentives for employees and employers are sufficient. We can see the benefits of each option but we can also see the challenges. We have shared our thoughts with the Treasury, HMRC and Ministers during the consultation and beyond.
“What we do hope for is that if further significant change is to be endured by us all, the approach is well thought through and then stable for the benefit of the hose trying to save for later life, their employers and the pensions industry.”
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