Yesterday (13 April) Labour was the first to publish its pre-election manifesto which included stopping winter fuel allowance for the richest 5 per cent, capping pension tax relief for higher earners, retaining the triple lock on state pensions and ensuring private pensions are “good value”.
Over the weekend, the Conservatives put forward an election pledge to cut pension tax relief for additional rate taxpayers who earn more than £150,000. They plan to spend any money saved on creating new inheritance tax rules, which will mean no IHT will be paid on homes worth up to £1m.
Under the Tories plans, the annual allowance would be reduced from £40,000 to £10,000 for very high earners.
Andrew Pennie, marketing director of Intelligent Pensions, said that what was clear from the various party plans was whoever wins May’s general election, pensions tax relief for additional rate taxpayers will be reduced severely.
“This is another example of pensions being seen as an easy piggy bank to raid to fund other initiatives and election promises; but this is the wrong approach.
“Given the level of changes to pensions over recent years, especially the introduction of pension freedom in April, we now need a period of consistency, instead of constantly chopping at the tax advantages.”
Mr Pennie suggested that this group of people should take a good look at their pension savings and consider whether they want to pay any further pension contribution now to get the full tax relief. “They have until the first Budget under the new government, whatever colour or flavour that is, to make this decision.”
Adrian Walker, retirement planning manager at Old Mutual Wealth, also used the piggy bank analogy, stating there is a danger that the emerging goodwill towards pensions is stunted.
“People are paying attention to pensions like never before and a period of certainty and stability would go a long way to rebuilding the savings habit in the UK.”
James McLeod, head of pensions at AES International, said if an elected Labour government wants to continue to reform the pensions market, it may need to take on more responsibility for guiding and protecting consumers.
“There is unprecedented pressure on pension providers and the IFA community to support the latest pension changes and, while the industry is doing as much as it can to support those reaching retirement, perhaps the government needs to take on even more responsibility for ensuring people are not ripped off by pension scammers.”
Mr McLeod added that there is lots of guidance available but it is often not taken. “But perhaps the next government may want to consider more direct ways it can educate those reaching retirement about their options or clamping down harder on those who abuse the system.”
emma.hughes@ft.com
