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ABI says chance missed to increase retirement provision

The £1.4m lifetime pension limit is at the heart of much industry criticism to the Pensions Green Paper.

Life companies, industry bodies and IFAs have broadly welcomed the Inland Revenue&#39s proposals for simplification of the tax regime but have attacked the Depart-ment for Work and Pensions&#39 paper, saying it contains little to encourage new saving or slow the flight from final-salary schemes.

The Pensions Manage-ment Institute, Standard Life, Axa and Scottish Life have all criticised indexing the lifetime limit to retail prices, arguing that more than just pension fat cats will be hit with time as salaries increase.

Responses to the DWP were due by March 29 while the Inland Revenue consultation period closes on April 11.

Norwich Union has attacked the idea of valuing the lifetime limit at retirement rather than basing it on contributions and wants a rethink on the interface between state and private provision.

It says unless the limit is linked to contributions, consumers will be penalised for investment performance with a tax of 60 per cent for all fund growth above the £1.4m limit.

Product providers are also concerned that a low lifetime limit could reduce workplace pension provision by disengaging senior executives from their company pension schemes. Scottish Life proposes offering an increased limit to senior executives of companies that help persuade a significant number of employees to join its scheme.

The TUC has called for a new level of compulsion on employers to contribute to employee pensions and a restoration of the link between state pensions and wage increases.

Holden Meehan director Amanda Davidson says: “We are not fond of the £1.4m lifetime limit as it will penalise good performance. The money is taxed as pension anyway so why have a limit at all?”

The ABI says the Department for Work and Pensions has missed an opportunity to increase retirement provision and its Pensions Green Paper will not plug the savings gap.

In its response to the DWP paper, the ABI calls on the Government to solve the problem of pension undersaving and also calls for reform of the state pension system by raising the state second pension above means-tested benefits.

The ABI has joined the chorus of attacks on the Inland Revenue&#39s proposal to tie the £1.4m lifetime pension limit to prices rather than wage inflation.

It wants to see a reduction in the recovery charge, arguing that the proposed 33 per cent charge is punitive and likely to discourage pension saving.

Prudential is calling for financial incentives for employers that offer to match employees&#39 contributions. It also wants greater harmonisation of the defined-benefit and defined-contribution regulatory frameworks.

Aegon UK says that proposals to provide workplace advice will only prove to be effective if the plan is endorsed and at least partially funded by the Government.

It has called for the removal of the requirement to buy a limited price index-linked pension for money-purchase occupational scheme members, as proposed by Alan Pickering.

ABI director general Mary Francis says: “We support the voluntarist approach to saving. But the proposals in the paper will not provide today&#39s workers with decent incomes in retirement.

“The Government needs to set clear and demand-ing targets, both for reforming the state pension and for increasing voluntary saving.”

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