Depending on the success of the at-retirement reforms, tax relief could be removed altogether by the next government, according to the official business champion for older workers Ros Altmann.
Speaking yesterday afternoon (24 February) at FTAdviser’s Retirement Freedoms Forum, she said that the lifetime allowance “makes no sense” and whoever takes power in May is likely to undertake a “proper, comprehensive review” of tax relief for pensions.
She added: “Maybe they’ll take away tax relief altogether if the reforms are popular... so you’d better buy now while stocks last.”
The issue of ‘flat rate’ tax relief and scrapping the lifetime allowance has been raised recently by both providers and the pensions minister, who suggested a single 33 per cent level for tax relief would allow the government to claim it would be giving £1 for every £2 contribution.
Ms Altmann pointed out that pensions were becoming an inter-generational tool for those in the “lucky generation” of post-war prosperity and generous defined benefit schemes to pass that on to the current younger generations struggling to build up such savings.
Richard Hulbert, insight analyst for wealth at Defaqto, countered by saying that tax relief was not so much of an issue for many pension savers, as they do not take advantage by claiming it back anyway.
However, he did accept that the Budget changes promoting the passing on of pensions to the next generation via changes to inheritance tax “has made pensions sexy again”.
Ms Altmann had previously commented that it has now got to the stage where people are better off spending their Isas or the money held in their homes, rather than taking their pension.
She also argued that the issue of long-term care was potentially much worse than any previous pension problems, urging the government to do more in making people aware that they will have to cover the cost and suggesting extra incentives to help them pay for it.
“We should allow people to withdraw money from their pension, tax free, for care costs or set up an Isa that would allow people to do the same thing, that could be passed on free from inheritance tax.”
Toby Nangle, head of multi-asset at Threadneedle Investments, deemed these plans ‘machiavellian’, decrying the fact that the incentive to leave something for the next generation would be the only way to fund long-term care.
Steve Webb had previously deflected attempts to use pension tax relief to fund things like long-term care, pointing out that it comes at a time when the government is supposed to be tightening its belt.
peter.walker@ft.com
