CompaniesMar 20 2012

Pension tax changes counter-productive to saving, Friends

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ByMichael Trudeau

Changes to tax relief on pensions could counter-productively discourage people from saving for retirement just before the launch of auto-enrolment.

In advance of George Osborne’s budget speech tomorrow (21 March 2012), Martin Palmer, head of corporate benefits marketing at Friends Life, warned that such changes would not solely affect higher earners.

He said: “If decision makers within companies are disincentivised we can hardly expect them the support and encourage their lower paid employees at the same time.

“Removal of higher rate tax relief would make pensions a lot less attractive as a savings vehicle to higher rate tax payers, undermining pensions when the launch of auto-enrolment is imminent.”

However, he added that such a move is unlikely: “If the chancellor did decide to go down this route, we believe the more likely option is that tax relief would be removed only for those earning over a certain threshold, for example £100,000.

Mr Palmer also warned that more changes could be introduced on top of the lower lifetime contribution limits due to come into effect on 6 April 2012.

“An easy hit for the government from an implementation point of view as it builds on existing policy this would seriously undermine any intention to encourage saving.

“What consumers need is a period of stability to gain trust and confidence in saving. Our verdict is that this is the most likely measure to change, but we wouldn’t bank on it.”