“Moving away from tax-exempt contributions and investment growth, and taxed pension income, risks destroying the foundation of a system that works. Of course, the Government is entitled to decide how much tax relief Britain can afford. But while it is tempting to pretend that the Government could start from a blank sheet of paper, the reality is that there is already a myriad of different arrangements to accommodate. We know that every intrusion – and they have been many and regular – has added to the complications. Moving away from the premise of (Exempt, Exempt, taxed (EET) could be a disaster.
“The Government needs to recognise the potential costs to employers and administrators, the difficulties of making fundamental changes and the likely worsening in member outcomes. The current tax regulations are not even ten years old. It is impossible to encourage pension savings when rules and regulations are changed so regularly.
“The Government should leave EET alone and follow these four steps:
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Decide how much current tax relief the Exchequer can reasonably afford each year, recognising that the oft-quoted cost of £50 billion ignores the value of tax which will be paid on pensions in retirement
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Prioritise the targeting of this relief. The Government might choose to favour those on lower earnings, or reward employers willing to commit to providing good pension provision
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Improve engagement by both employers and individuals by switching focus to simplicity – lost since the 2006 vision. Over-regulation has been the single biggest bar to good pension provision
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Take positive action to improve financial education to encourage better retirement decisions.”
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