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02

Pension taxation 'should be left alone for a while'

Open-access content Friday 13th February 2015 — updated 5.13pm, Wednesday 29th April 2020

Pension tax relief should remain unchanged “for a while” and a period of consolidation is needed, according to Hargreaves Lansdown.

2

The firm, commenting on pensions minister Steve Webb's proposal of a flat rate of pension tax relief, said the recent changes to pensions had led to "much disruption and uncertainty". 

Speaking in a personal capacity at an event on Wednesday, Webb, from the Liberal Democrat party, proposed a flat rate tax relief at 33% for all pension contributions, regardless of the individual's rate of income tax. 

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "Our own view is that while many of the recent changes to pensions have been for the better, there has been so much disruption and uncertainty around pensions in the past couple of years (and more to come with the state pension changes next year) that a period of consolidation is needed. Pension tax policy should be left unchanged until towards the end of the next parliament at the earliest, and any changes should be supported by rigorous analysis of the potential consequences."

McPhail said due to austerity, tax would likely rise after the election (taking place on 7 May 2015) and urged the next government "not to act hastily". 

He said: "Taxes tend to rise in the first budget after a general election. It is inevitable that the next government will consider pensions tax relief when looking at how to improve the nation's finances. We would urge them not to act hastily and not to reduce the overall incentives given to taxpayers to defer consumption and make sensible provision for their retirement."

Meanwhile, the Centre for Policy Studies (CPS) welcomed the minister's proposal. Back in April 2014, the CPS published a report entitled Retirement Savings Incentives proposing tax relief on pension contributions to be "replaced by a Treasury contribution of 50p per £1 saved".

Michael Johnson, author of the report and research fellow at the CPS, said: "We are delighted to have swayed the minister on the matter of tax relief. This reform would be a significant step towards improving the effectiveness of HMT's investment, the purpose of which should be to encourage a broad-based savings culture - more people saving more."

Webb's speech was made at the conference organised by the Resolution Foundation in London. The Liberal Democrat party said the content was neither official party policy or government policy.

This article appeared in our February 2015 issue of The Actuary.
Click here to view this issue
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Topics:
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