Mercer warns on Govt annual allowance proposals
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Mercer has criticised the Government’s plans to reduce the annual allowance for failing to exempt early retirement and redundancy.
The firm welcomes the move to rethink the restriction of higher rate tax relief but warns the Government to be careful how it introduces rules to deal with events that might be missed or taxed unfairly, for example, past service, early retirement and redundancies.
It sayst marginal tax relief should be retained and that the only limits to this should be imposed via the AA and lifetime allowance. It says introducing other limits to tax relief will be unproductive and likely to result in unintended consequences.
Principle Eleanor Dowling says: “A lower AA is likely to be an effective way of meeting the Government’s aims of increasing fairness within the pensions tax regime without introducing more complexity. The AA sits within the current system and its use is less likely to require material intervention to pension administration systems.
“If implemented thoughtfully this approach of amending the existing tax-relieved contribution limits will result in most people falling outside the system. Careful consideration needs to be given to how this is implemented, to ensure that the restriction in tax relief is not extended inadvertently to those on middle incomes.”
Dowling says swift and decisive action to remove the uncertainty facing employers, savers and trustees is a must.
But she says: “Rushing through pensions policy with the main intention of raising a certain amount of money for the public coffers is unwise and the Government needs to think beyond revenue-raising to the impact the changes will have on ordinary pension savers.”
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Readers' comments (2)
Stephen Ward | 28 Jul 2010 4:17 pm
Well said Eleanor - the discussion doc allows about 4 weeks for input and when many are on holiday.
So much for creating an environment which encourages pensions savings.
The current regime was the result of about five years of careful consideration and consultation.
Now it is being changed with minimal time for proper consideration. There will no doubt as Eleanor says be unintended consequences
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David Trenner - Intelligent Pensions | 2 Aug 2010 11:54 am
Stephen
It took 5 years for the last government to understand what Peter Hopkins and his excellent team was proposing - and to u-turn on most of it! The last lot were great on consultation, and then ignoring what we all said!
I like the idea of quick consultations. Its not as if we don't have it all drafted from last time!!
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