Ahead of next month’s Budget former Labour MP and shadow pensions minister Gregg McClymont has warned further pension reforms could “signal the end of occupational and retail pensions as they have been understood in the UK for nearly a century”.
In an for sister newspaper Investment Adviser, Mr McClymont, head of retirement savings at Aberdeen Asset Management, pointed out the pension freedoms introduced last year have already had a profound effect on the UK pensions system.
“Pensions are usually defined in terms of an employer contribution and particularly advantageous tax treatment provided by the state, in return for locking away savings until retirement, at which point they are turned into a regular income stream.
Mr Osborne’s pension freedoms “remove the fourth pillar and erode the third,” he explained.
While he acknowledged that pensions will survive as long as employers remain committed to the system, he pointed out the “elephant in the room is the chancellor’s consultation on reforming pension tax relief”.
He added that while the idea of making pensions more like Isas should not come as much of a surprise, “pension Isas are not compatible with the employer-centred system of workplace pensions that has been the objective of public policy since the authoritative conclusions of Lord (Adair) Turner’s Pensions Commission a decade ago”.
He argued: “Writing off national insurance contributions (Nics) on the employer’s contribution and enabling salary sacrifice encourages employers to offer more than just minimal pensions benefits. Take them away and employers’ responses are predictable.
“This is the scenario in which pensions could enter a death spiral. Already scratching their head at providing pensions that can now be accessed long before retirement, the winding up of Nic reliefs and salary sacrifice could prove the final straw for employers.
“Ultimately, with a whisper, not a roar, high quality defined contribution workplace pensions could disappear.”
The full article from Mr McClymont can be read by clicking here.
