Nick Allen is head of pensions consultancy for Jelf Employee Benefits
‘We believe that tax relief is an incentive to save, however because it’s been shrouded in complexity, it isn’t well understood and so the incentive isn’t maximised. However, once explained, people see it as a compelling incentive to save. Coupled with the fact that employers now (or soon will) also make pension contributions because of auto enrolment, the combination makes investing into pensions an attractive option. The key is to communicate the value. Explaining the value requires education, and it makes sense for employers to invest in such education, not least to maximise the value of their spend on pension benefits.
‘We believe the TEE approach, whilst plausible, is flawed. There is quite a lot of tax law that would need to change in order to accommodate it, as well as measures to remove tax avoidance that could otherwise occur. This would serve to make TEE more complicated and costly to business, which is unwelcome. Moreover, the long-term implications of TEE are not fully understood and so could be risky play by any government given the long-term effect it might have.
‘We propose further simplification in the annual allowance to be set at a level that would allow the majority of UK employees to save sufficient funds for retirement purposes but removes the tilt towards the highest paid people benefiting from the majority of the tax relief in the system. We also believe that even further simplification on funding contributions should be introduced by removing carry forward so that it is on a use-it or lose-it basis.
‘More radically, subject to caps and collars, we propose pension freedoms are extended to those aged below 55. This would open up the opportunity for a true workplace-saving culture that would appeal to all age groups and support their work and life. We believe there are existing systems in place to open up these wider freedoms to a broader age range such that minimums remain in the pension saving environment whilst allowing access for typical lifecycle needs. Combined with workplace financial education, this type of savings environment could revolutionise personal wealth creation and help people become more prosperous over the long term.’
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