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ABI and Treasury hold talks over pension tax incentives


The Association of British Insurers has held talks with Treasury officials over the future of pension tax incentives in the UK.

The ABI hosted a meeting with representatives from insurance companies, the Pensions Policy Institute, Age UK, the Money Advice Service and the Treasury this morning to discuss how to encourage saving in the UK.

This included talks around the use of taxpayer money to encourage pension saving.

Earlier this year, the Treasury said there was a “legitimate public debate to be had” about pension tax incentives after a PPI report found “little evidence” the £35bn a year spent on tax relief actually encourages pension saving among low and medium earners.

Following the meeting, ABI director general Otto Thoreson set out five key principles for future pension reforms following a meeting with industry representatives and the Treasury.

The trade body says any future reforms must:

• Be fairer, simpler and easier for people to understand;

• Encourage people, particularly those on low to middle incomes to save more;

• Be straightforward to implement – including for employers and the industry;

• Command cross-party support;

• Demonstrate good value for money to the Exchequer by ensuring any future reforms are revenue neutral or lower cost than the current system.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. I would suggest that constant and incessant meddling by politicians who know nothing about the pensions industry should be the first step.

  2. The problem is not with what happens when the money goes in, but when the money comes out at the other end.

    Without a fair deal at both ends, then one will cancel out the other, hence a decline in consumer appetite…There you go committee, you can have that one for free.

    A proctologist rarely assesses the problem by starting with a look at your teeth!

  3. I fully agree with Steve Barret, tax relief is just that (relief), so of course higher rate tax payers will benefit more – they pay more tax!! nothing wrong with that.

    Steve D – i think you miss the point- pretty much everyone pays less tax in retirement, as such there is normally a gain from this perspective. of course higher rate payers will gain more, i dont see the problem, as they have to contribute more to qualify in the 1st place.

  4. Seems like the moderator didn’t fancy my last post:

    Absolutely spot on Steve.

    When will they ever learn that nothing (apart from compulsion) will ever make low to middle income save more? This is not a criticism of these people, just an acknowledgement of the plain fact that what these people want to do above all else is to improve their standard of living here and now. Demographically they live less long than higher earners anyway – so sacrifice now for a cursory benefit later is not exactly a great idea. Just a shame that the dunderheads in Parliament (and at the ABI) can’t see this.

    Reduce incentives yet further for the better off and see all pension saving go down the tubes. And in case they haven’t spotted it at the ABI, I’d like to lay odds that by far the greater amount of pension funding comes from those on or over 40-% tax. Disincentivise them and you may as well close the pension industry.

  5. Basic rate taxpayers don’t make much of a gain in retirement. The state pension takes up most of the personal allowance, so any private pension provision was given relief at 20% on the way in and taxed at 20% on the way out.

    Higher rate taxpayers get tax relief at 40% on the way in and pay tax at 20% on the way out (if basic rate taxpayers, as most are in retirement). Even if they are higher rate taxpayers in retirement, the significant portion of their pension from the personal allowance up to the higher rate threshold is taxed at 20%. They get 40% tax relief on the way in and pay substantially less tax on that money on the way out.

    So we have a situation where it is tax advantaged for higher rate taxpayers, but largely tax neutral for basic rate taxpayers. Is that fair?

  6. Roger

    Depends on the state pension accrued, but even at its maximum there is still £2000 of personal allowance left, so there is a definite tax advantage there.

    higher rate payers only gain more because they pay more tax.

    if you want tax relief for pensions to be the same across the board, can i infer from that you would like a flat rate of income tax too?

    why would that not be fair?

  7. I didn’t realise it was an oligarchy, I could have sworn it was a democracy? Why no PFS, why no APFA, why no IFACentre. Mainly unelected quangos meeting to talk shop.

  8. Anonymous,

    That was why I said “most of the annual allowance”, the combination of BSP and SERPS/S2P take up most of the annual allowance, not all. But the level of the gain to a basic rate taxpayer is laughably small compared to the gain to a higher rate taxpayer.

    No you may not infer either of the things you inferred. I am open minded on the idea of a flat rate tax relief, but am very much a believer in a progressive system of income taxation.

    Your point that higher rate taxpayers gain because they pay more tax is an argument without a home. It speaks very differently to people depending on their prior beliefs. To people who believe in progressive taxation it affirms that the higher rate taxpayers are being given an opportunity to weasel out of their fair tax burden, to those who believe in a flat rate of tax it suggest that the relief system is a beacon of sense. Such arguments are generally pretty redundant.

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