In Focus: Intergenerational Wealth  

Future generations hit by govt's pension tax plans

Future generations hit by govt's pension tax plans

Government proposals to tax pensions as a means of paying the UK's way out of the Covid-19 economic hole would be a 'double whammy' on future generations, Aegon has warned.

Steven Cameron, pensions director at the life and pensions giant, said any proposals to reduce the higher rate tax relief on pensions, while also keeping the state pension triple lock, would hurt the younger generations the most. 

He said: “Once again the prospect of reforming pension tax relief for higher earners is being floated as a means to restore holes in the government’s finances.

"What’s different this time is the state pension triple lock is also firmly in the spotlight, with recent earnings anomalies likely to grant current state pensioners a bumper increase next April.

"Reducing the savings incentive for many higher earners, while hiking the state pension could end up stoking intergenerational tensions and does raise questions about fairness."

According to Cameron, retaining state pension triple lock without adjustment was likely to grant state pensioners a windfall increase next April, paid for by working age population.

And any plans to cut the generosity of pensions tax relief - including imposing a tax on employer contributions - would harm many working-age pension savers, creating "an intergenerational double whammy", Aegon suggested.

Cameron was responding to plans leaked today (June 21) by The Telegraph, which revealed HM Treasury was also seeking to make further cuts to the pensions lifetime allowance, a proposal which he added would be "particularly punitive".

Nigel Green, chief executive and founder of deVere Group, commented: “Successive governments have a long history of seeing pensions as easy targets when they need to bolster their coffers. 

“This reported move by the Treasury would be a stinging, stealthy raid on pension savings. It would be a slap in the face for those who have worked hard and saved hard, prudently putting money aside to enjoy their retirement with loved ones.” 

He warned that delivering this blow to pension savers, which could come into effect as early as this autumn, would be counter-productive for the country.

“This move would serve as a disincentive to save as much as possible for retirement, and therefore it could be harmful to Britain’s long-term economic success", Green added.

This could compound pension problems for younger generations, as research from Purely Pensions earlier this year found that savers in their 20s could lose more than £21,000 at retirement if they put off making contributions to their pensions for the first five years of working.

Purely Pensions warned many young people who started working during the Covid-19 crisis may not have chosen to start contributing towards their pensions, and therefore could miss out on significant amounts of money by the time they reach retirement age.

simoney.kyriakou@ft.com