Further reforms to pensions could discourage retirement saving, argues Portal Financial, one of the UK’s largest retirement specialists.
In his emergency budget, the chancellor George Osborne confirmed that the annual allowance for people earning over £150,000 a year will taper from £40,000 to £10,000 in order to fund a new inheritance tax threshold of £1 million.
It was also announced that the government is considering treating pensions like ISAs, where taxed income is added to the fund and it is withdrawn tax free later on, with no tax applied on the growth.
Jamie Smith-Thompson, managing director of Portal Financial, says: “The big concern is where is the incentive for people to save into a pension? One of the main advantages of a pension under the current rules is tax relief, which is applied at the saver’s marginal rate of income tax. Removing that could be a serious deterrent to saving, and our own research has found that almost two-thirds of people with an annual household of over £20,000 a year would be less likely to save into a pension if tax relief was removed or reduced.
“On the other hand, for those who would still save into a pensions ISA, there could be more tax planning opportunities than just the 25% tax-free lump sum that we are accustomed to. Nonetheless, given that there have been a number of changes to pensions in a relatively short space of time, the chancellor should consider leaving pensions alone for a while. Constant change undermines confidence and creates unnecessary confusion, which is the last thing people need when trying to save for retirement.”
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