Pensions  

Zurich: Pension tax relief encourages saving

Zurich: Pension tax relief encourages saving

The government should not remove valuable tax breaks on pensions as it might discourage people from saving, the chief executive of Zurich UK Life has warned.

Gary Shaughnessy called on the government to provide certainty for consumers to encourage long-term saving, rather than removing pension tax relief.

He said: “Investing into a pension from untaxed income is a compelling incentive to lock away savings for the long-term.

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“Removing such a valuable tax break, as the government is considering, would drive people away from retirement saving.”

Instead of scrapping pension tax relief, Mr Shaughnessy said the government should reinforce its value by introducing a 33pc flat rate that would be a fairer, simpler and more sustainable solution for people of all incomes.

He added that taxing pensions upfront, as Isas are taxed, would weaken the culture of long-term retirement saving.

Adviser View

John Fletcher, divisional director for national advisory firm Brewin Dolphin, said that, following the pension changes so far, people are looking to use their pension as tax-efficiently as possible.

He said: “People have the option of putting their pension fund into drawdown on retirement, taking the 25 per cent tax-free lump sum and drawing an income as and when needed from the remainder, subject to tax.

“One of the major benefits of this way of cashing in a pension is that any pension fund left over at death can be passed on to dependants and other beneficiaries. Previously, only dependants (including spouses, registered civil partners or children under the age of 23) could inherit a pension fund and it was only tax-free if the investor passed on with an untouched fund.”