In response to the HMT Consultation on Pensions Tax Relief, Aegon:
• Adds support to a single rate of relief over the ‘highly damaging’ Pension ISA and highlights the particular implications for consolidating pensions
• Stresses the need for reforms to apply equally to defined benefit schemes and proposes a workable solution
Single rate of relief is strongly preferable to the Pension ISA
“The Pension ISA would be fundamentally incompatible with the current regime. Everyone already saving into a pension would have to stop paying into their existing scheme and set up a brand new one. Not only would that double the complexity, add to costs and lead to confusion for generations, it would also make it extremely difficult for anyone to bring all of their pensions together. Consolidation reduces charges, helping people get a better deal, and is increasingly allowing people to make full use of the new pension freedoms.
“We favour a move to a single rate of tax relief on contributions, for the self-employed, employees and employers. This would be best delivered as a matched Government payment, focusing limited Government resources on incentivising those most in need of saving more for retirement. The Pension ISA alternative risks creating carnage across existing pension schemes and would derail newly set up auto-enrolment schemes.”
Defined benefit schemes
“So far, the focus has been on reforming tax relief for defined contribution schemes, which are now the norm in the private sector.
However, around three quarters of all existing tax relief goes to defined benefit schemes, which remain dominant in the public sector, so it’s important these aren’t left in the ‘too difficult’ box. If pension reform fails to address both types of scheme equally, we risk tax relief cuts falling disproportionately on defined contribution scheme members, particularly those paying higher rate tax.
“We propose that a single rate of relief be introduced for both employee and employer contributions to defined benefit schemes. Contributions for calculating tax relief would be set at scheme, rather than individual, level based on how much it typically costs to fund a year’s worth of the scheme’s defined benefits.”
|
