The Association of British Insurers has accused the government of “short term tinkering” after pensions minister Steve Webb spoke this weekend about making changes further changes to pensions tax relief.
In his speech at yesterday’s (5 October) Liberal Democrat autumn conference, Mr Webb said: “If I want to put £1 into my pension it only costs me 60p – the taxpayer contributes the other 40p through higher rate tax relief. But if someone on an average wage wants to put £1 into their pension it costs then 80p – the taxpayer only contributes 20p”, adding that this cannot be right.
“We spend something like £37bn a year on tax relief for pensions and yet overwhelmingly the money goes to those who are already well off and who will end up with decent pensions in any case.
“We could probably spend less on pension tax relief overall – helping to contribute to deficit reduction – but also rebalance the money so that everyone, rich or poor, got help at the same rate. We need to work through the details, but in my view the next government will need to address this long-standing unfairness.”
Huw Evans, deputy director general of the Association of British Insurers, responded that the proposed reduction in the lifetime allowance from £1.25m to £1m a “disappointing example of short term tinkering, which as the lifetime allowance is not indexed would affect many ordinary pension savers over time”.
Mr Webb also addressed the next challenge after auto-enrolment, that of getting members saving more than the 8 per cent statutory minimum.
He stated: “I am quite attracted to the idea that when you start a job the norm is that each time you get a pay rise a part of the extra cash goes into your pension, building up gradually to a worthwhile sum. You could opt out of this ‘automatic escalation’ but unless you actively chose to opt out, you would gradually contribute more.”
Mr Evans supported the prioritisation of increased pension contributions, but added: “However, that policy priority needs to go hand in hand with a long term settlement on the taxation of pensions savings.
“The best way to achieve meaningful pension reform is through cross party consensus behind a wider strategy that can deliver stability in the pensions system over at least two parliaments – only then can we build lasting change in saving rates.”
peter.walker@ft.com
