Personal PensionJul 20 2015

Green paper on pensions tax relief is moot

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Green paper on pensions tax relief is moot

A number of pension specialists have said that the outcome on the green paper focused on pensions tax relief, announced in the summer Budget 2015, has already been decided by the government.

It was announced that further radical reforms of the pensions system could be underway, with the implication that pensions contributions would no longer be tax free, but withdrawals would be.

Chancellor George Osborne said in his summer Budget speech: “This idea, and others like it, need careful and public consideration before we take any steps. So I am today publishing a green paper that asks questions, invites views, and takes care not to pre-judge the answer.”

However, Martin Tilley, director of technical services at Dentons Pensions told FTAdviser that he fears they have “already decided what they are going to do already”.

“They do need the tax revenue and it seems that the last couple of times that they have issued consultations, it doesn’t matter what parties consulted with have come back with - they’ve sort of pushed ahead with what they are going to do anyway.”

He cited the pension freedoms and annuity reform as examples where the government has not listened to industry concerns.

Examples Mr Tilley suggested were that the pension freedoms are not available for all, with those who have defined benefit pensions worth more than £30,000 being forced to take regulated financial advice.

Similarly, he added that annuity reform was “almost universally panned by the industry as not being workable” and that it was almost as if they had decided that they were going to do it irrespective of what the consultation had said.

Claire Trott, director and head of pensions technical at Talbot and Muir, agreed that the green paper “already has a predetermined outcome”.

However, she suggested that the government may not be able to push through policies if the industry “rallies around and fights” against the removal of upfront tax relief.

“They have to publish the responses, so it will become obvious if they have gone against the majority. This doesn’t mean they won’t, but it means we as an industry need to ensure we respond in full and ‘en masse’ to get our ideas across whatever they may be.”

She added that advisers should also be getting involved and not leaving it to providers to pen responses, because it is the advisers who have the greatest contact with individuals, and are therefore best placed to comment on the impact of any changes.

Andrew Tully, pensions technical director at Retirement Advantage, stated there is a danger that the government has a favoured outcome, with a move to an Isa-style system bringing a significant tax flow to government over the next few years.

“It’s crucial that any change to pension tax is well thought out, and designed with the intention of encouraging more people to save more money for their retirement, not driven by short-term tax gains.”

However, Premier Pensions Management senior consultant John Reeve, said it is unfair to suggest that the government will go ahead irrespective of the consultation.

“I have no doubt that they are serious in getting input as to how new options may work and the issues that should be considered. Having said this, I think that the preferred direction of travel is clear.”

He said that what was most concerning was Mr Osborne’s speech stated he was “open to further radical change”.

Mr Reeve commented that in those five words he pulled the rug further from under any plans for investment. “Whether you are a product provider, an adviser or an employer looking to make provision for your employees, you cannot make any medium term investment decisions with any degree of certainty.

“The chancellor, and others, have been very critical of those who have not invested the time and money needed to make his pension freedom options available to everyone.

“This will further restrict the innovation and investment that last year’s Budget initiated and which excited many of us in the industry. We will now enter another period of planning blight where no long terms plans can be made.”

Mr Reeve added that one other matter worth noting is that in a time when regulators and legislators are focusing so strongly on charges and costs, another level of complexity can only increase the costs of delivery.

“This will either increase charges or squeeze profits and hence further reduce investments. Either way it is the consumer who loses out.”

ruth.gillbe@ft.com