Personal Pension  

Businesses warn gov’t not to tinker with pension tax

Businesses warn gov’t not to tinker with pension tax

Almost eight out of ten businesses are against further changes in pension taxation, while the majority cited certainty as the government’s top pension priority in this parliament, according to a new survey from the Confederation of British Industry and Mercer.

More than 160 companies responded, from FTSE 100 firms to SMEs, employing more than 500,000 employees in total, with a combined market capitalisation of £237bn.

In terms of the need to preserve the current pensions tax relief framework, the study showed that 79 per cent reckon reviewing it should not be a priority for government.

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Nearly half of respondents (46 per cent) said some employees could cease saving into pensions if a change occurs.

Neil Carberry, the CBI’s director of employment and skills, stated that businesses are clear that the current framework of pensions tax relief at the point of saving – while complex – is the best for encouraging engagement.

“Losing this would remove company incentives, as employer-provided pensions are the only way to deliver low-cost saving at substantial scale at levels above automatic enrolment rules. A change would cause damage to the fiscal position too in the long-term.”

Mercer’s chief executive Fiona Dunsire added that retaining the status quo is vital to avoid imposing unnecessary cost on businesses.

“Our clients are still dealing with the introduction of pension freedom and auto-enrolment as well as preparing for the end of contracting out so there is little appetite for further reforms.”

Last week, an AJ Bell survey of 170 advisers found that almost 60 per cent thought the existing system of pension tax relief does not need to change, stating it is right that relief is received at the rate tax is paid (42 per cent) and that there has been enough change, with a period of stability required (40 per cent).

Following the summer Budget, the Treasury published a green paper which proposed that pensions contributions could no longer be tax free, but withdrawals would be. This Isa-style ‘taxable-exempt-exempt’ system was proposed alongside a couple of other options, one of which being no change.

The adviser survey found just 4 per cent would like to see a ‘P-Isa’ introduced, a stance backed by several providers during the consultation period, which finished earlier this month.

Elsewhere, the research found that the percentage of respondents identifying the need to make auto-enrolment administration easier leaped to nearly 70 per cent, compared with just 41 per cent in 2013.

Two thirds also cited changing regulation adding to the compliance burden, while the vast majority indicated that increasing take-up levels among employees for existing schemes must be a priority, rather than raising minimum contributions.

Mr Carberry said that recent regulatory changes, coupled with auto-enrolment and state pension reform, mean UK business leaders now crave stability.

“Businesses want to focus on ensuring employees are making the most of what’s on offer, but there is clear concern about regulatory changes eroding incentives to save, which must be avoided at all costs.”

Finally, the second pension priority for the government, according to boardroom leaders, is working with partners in Europe to avoid further costs due to policy changes.