Tom Selby, AJ Bell director of public policy, says: “Side-stepping calls for stability in pension tax rules ahead of the Budget gives the government an easy get out clause for now, although it means savers are subjected to at least another five weeks of uncertainty.
“Nonetheless, the level of support our Pension Tax Lock petition has generated sends a clear message to government: moving the goalposts on pension tax incentives is not the way to promote confidence in retirement saving.
“The government’s response suggests it could look to the Pensions Commission for an opinion on the future of pension taxation, meaning immediate reform at this Budget should be off the table. If this is the intention, as an absolute bare minimum, Chancellor Rachel Reeves should pledge not to make any changes to the pension tax system at least until the Commission reports, removing uncertainty in the immediate term, allowing time for the entire pension landscape to be considered in the round and for the implications of any changes to be carefully thought through.”
Government response
“The government has at least acknowledged the importance of the pension tax pact between savers and the taxman, under which Brits are able to defer income tax until retirement and are incentivised by the added perk of a 25% tax-free entitlement. This deal is struck decades ahead of retirement when people start working and saving in a pension. Changing the rules of the game before people retire would be an absolute betrayal of those still working hard to build up their pension, who deserve the right to retire on the same terms as the generation before them.
“Focussing on the gross cost of pension tax relief, as the government does in its response to our petition, is also misleading, failing to take into account that pensioners pay tax on their income in retirement. This tax deferral system is the bedrock of retirement provision in the UK and means people, with the help of their employer, can build savings for later life, forming an important part of the consumer economy, reducing dependence on the state in retirement and helping smooth tax revenues in an ageing population. None of that can be captured by looking at the issue only through the lens of the ‘cost’ of pension tax relief for the Treasury.”
The role of the Pensions Commission
“Looking ahead, the Pensions Commission will clearly play a pivotal role in the future of the entire retirement savings system. The government is right to argue there are still challenges with under-saving across the UK, particularly among certain groups such as the self-employed, and it is sensible to look at those challenges holistically through an arms-length commission.
“Nowhere in the terms of reference has government specifically indicated that the Commission should review pension tax incentives, however, and the Commission’s focus should instead be on pension adequacy – ensuring everyone has at least enough to fund a decent retirement. That is best achieved by looking at boosting participation among groups with fewer savings. Ripping up the rulebook will only damage confidence, doing nothing to help encourage people to save for the future.
“Fundamentally changing the terms under which people can access their own money, which they set aside for retirement in good faith, threatens to undermine people’s confidence in long-term saving and damage public faith that governments can be trusted to keep their end of the bargain when people sacrifice income today to provide for themselves in the future.”
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