Tax  

PwC calls for Autumn Statement pensions tax action

PwC calls for Autumn Statement pensions tax action

Nearly half of UK adults saving into a pension have said tax incentives are important to their plans, according to a survey by PricewaterhouseCoopers, prompting calls to modernise the system.

In the PwC survey, 45 per cent of UK adults saving into a pension scheme consider tax incentives to be an important factor, with a third of those (33 per cent) considering it the most important factor. 

This has led the management consulting firm to call for steps modernise the pensions tax system as part of the Chancellor Philip Hammond's Autumn Statement on 23 November.  

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PwC has stated that pensions tax incentives are "clearly not simple nor intuitive to understand."

One area that was single out by the company was  the current pensions annual allowance taper for people earning between £150,000 to £210,000 a year, which the company called "fiendishly complicated" especially when taken into account with new government scheme the lifetime individual savings account (Lisa).  

The poll showed that 15 per cent of UK adults saving into a pension scheme do not know what the tax incentives are and that most UK adults (65 per cent) do not feel they understand well how workplace pensions are taxed.

Raj Mody, pensions partner at PwC, said: “The Chancellor could look to simplify the annual allowance taper considerably. Alongside this could come a change to the way tax relief works for pension savings, for people of all earnings brackets. 

"This could be presented more cleanly as a top-up incentive, Lisa-style. It would be another step towards a reformed pensions tax system, and convergence of pensions and Lisas."  

Mr Mody added: "The range of options available can clash and cause confusion.

"It is a tough choice for any individual employee to make the trade-off between the value of additional employer contributions and tax reliefs for their auto-enrolment arrangement, versus the potential greater flexibility which LISA provides and the simpler bonus incentive.

“It doesn’t just matter what the facts are for how all these arrangements work, it also matters how much people understand them.”

Susan Hill, director and chartered financial planner at St Albans-based Susan Hill Financial Planning, said: "I don't think it’s about restricting the higher end, but levelling the opportunities so that the lower paid employees receive higher value contributions. 

"Lower paid workers can’t afford to make the same percentage contribution as the higher paid and the change will have to come from employers and the contributions they - the employer - make on behalf of the lower paid.

"I believe we should consider capping the employers’ contribution for higher paid employees, not the tax relief on pension contributions, and increasing the employers’ percentage for lower paid workers.

"There is a lot more we can and should be doing for the lower paid worker, many of whom will be women,  if we are to make the situation fairer."