Regulatory changes to pensions will keep on coming, and might result in a flat tax rate of 20 to 25 per cent, Gregg McClymont has claimed.
The head of retirement savings for Aberdeen Asset Management said the government will keep on tinkering with pensions because it "needs to control" the spending on this sector.
Mr McClymont told attendees at the FTAdviser Income for All roadshow in Exeter there were several reasons for this, but demographic changes and the rising intergenerational inequality were the biggest problems, which would continue to plague pension policy.
The former shadow pensions minister said: "State pension spending is going to rise. It is already taking up 42 per cent of the spend on benefits in the UK and by 2065 will be a significant percentage of the national GDP."
He said if the cost to the Treasury keeps rising, and longevity increases, the government will have no option but to manage costs by bringing state pension age increases into play earlier than expected.
Currently, by 2020 the SPA for men and women is 66 and 68 by 2046.
He also warned of the old age dependency ratio, which 30 years ago was roughly 300 for every 1000 of the working population. This is set to rise to 500, although higher SPAs could compensate.
Moreover, Mr McClymont added, rising life expectancy, lower fertility rates since the 1960s, a potential curb post-Brexit on economic migration and more older workers staying in employment are all putting pressure on the Treasury.
With an estimated £33bn cost of pensions tax relief to the Treasury, he warned that the government may well return to the thorny issue of pemsions tax relief.
"More than that" he warned, "the debate on the disparity of inter-generational economics is coming to the fore. Some figures are calling for a 33 per cent flat rate but this is not going to save the government money, especially with more lower-paid people joining workplace pensions as a result of auto-enrolment.
"In fact, the government would lose money with a 33 per cent flat rate. I think what is more likely if the government does go down this route, we will see a lower flat rate of pension tax, perhaps between 20 per cent and 25 per cent."
Yet while the government may take from the tax incentives, the younger generation may see increasing financial hardship. He showed figures from ONS that revealed while average net UK wealth is nearly £3 trillion, the 65 to 74 year olds have the lion's share, thanks to generous defined benefit schemes and accumulated property wealth.
He added: "To the older go the spoils".
simoney.kyriakou@ft.com
