“This review is long over-due as the tax treatment of pensions has got out of hand and is overly complicated. Continual changes have undermined confidence in pensions and this is a great chance to re-build that trust by overhauling how pensions are taxed once and for all. This could help address the fairness of tax relief for those members earning defined contribution versus defined benefit pensions.
“The Government’s focus on encouraging a saving culture is good news. But turning taxation on its head, while convenient from a fiscal perspective, is really hard to communicate to consumers – especially those coming into auto enrolment for the first time, who often don’t have the support of employers' with long pensions history themselves.
“Saving for pensions and ISAs should be kept separate as there are clearly distinguishable goals – saving for old age versus earlier life events. The danger is that combining pensions and ISAs will confuse people’s savings and could leave people short at retirement. Consumers want both options and currently have this through their employer’s benefits programmes. Perhaps the tax advantage can be switchable, but funds need to remain separate.
“A radical change to taxing monies on their way in would effectively be a back door removal of the tax-free lump sum at retirement. It would be a major challenge for pension supporters if this was to happen, or if tax-free lump sum was to be removed for contributions already made.
“There is also a question now being implicitly raised by Government as to whether employers should enjoy tax relief on contributions to pay off defined benefit deficits. This could have a major impact on employers’ willingness to engage in supporting sustainable long-term savings of any kind.
“The public sector is not mentioned explicitly but as the largest area of continued defined benefit cost, one wonders whether the green paper will focus on the tax cost of these to the country?"
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