The pensions industry has come out against changing the tax relief structure to turn retirement savings into Isas.
The government’s consultation into the taxation of pension savings finished last week, with several prominent industry figures and bodies criticising the reported move to a pensions Isa.
Chancellor George Osborne launched the consulation in his post-election July Budget.
In his speech to the House of Commons at the time, Mr Osborne said he was open to “further radical change” in pensions, adding they “could be taxed like Isas”.
Jamie Jenkins, head of pension strategy at Standard Life, was among those who said the move would discourage people from saving.
He said: “Pensions would no longer enjoy tax privileges over Isas, so many people would not voluntarily lock up their wealth until retirement.
“Even if some kind of upfront incentive was applied to a taxed exempt exempt system, there is a genuine concern that future governments would be under pressure to tax income in retirement, leading to uncertainty for people saving now.”
Chris Hannant, director general of Apfa, agreed savers would have no certainty about how their savings would be treated in future.
He said: “I am concerned that the suggestion that people would pay tax now and having to trust a future government to honour a promise it didn’t make would destroy pension saving as we know it.
“Who would trust a future government not to fiddle with pensions? Messing around with tax incentives at a time of such huge change for the whole pension sector seems like madness.”
Meanwhile Steven Cameron, regulatory strategy director at Aegon UK, said the move would save the chancellor money in the short term but would place “huge burdens” on future generations of workers to support a growing retired population.
The Investment Association also warned the move would “pose too many risks”.
One popular proposal was a flat rate of tax relief, which Tilney Bestinvest director of financial planning David Smith said should be set at 33.3 per cent.
He said this would boost the value of retirement funds and simplify administration.
Richard Parkin, head of retirement at Fidelity Worldwide Investment, agreed, but recommended a lower flat-rate.
He said: “A flat-rate approach, if set at the right level, can provide a sustainable incentive and by taking away the two-tier system, we can help make things simpler for savers.”
David Smith, director of financial planning for national firm Tilney Bestinvest, said: “The current pensions tax regime is overly complex but the primary incentive for saving in a pension scheme is the upfront tax relief.
“A simplified pension framework without this incentive will be more harmful than the current system. We are fundamentally opposed to switching to a framework that does not include upfront tax relief.”
Right to reply
A spokesman for HM Treasury said: “Our consultation into pensions tax relief has now closed. We will consider the responses and respond in due course.”
