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Age UK: Pensions changes are a missed opportunity

Jane Voss MM blog

In advance of last week’s Autumn Statement, there was a lot of speculation about Government plans to restrict the tax relief on pensions contributions. Most predictions were for a reduction to the annual allowance from the current limit of £50,000 to £40,000 or even £30,000.

There were also some predictions that the Chancellor would reduce the lifetime allowance from the current rate of £1.8m.

In the current economic climate, it was hardly a surprise that the Government chose to cut the pensions tax relief annual allowance to £40,000, and the lifetime allowance to £1.25m. Many people would say this is fair, and although the NAPF is right to point out that it will affect some people on relatively modest incomes in final salary schemes, the Government has said it will provide some protection against retrospective tax charges and is not introducing the change until 2014, giving time to plan.

However, we are disappointed that the Chancellor has not used this as an opportunity to take a broader look at how to reward people for saving in a pension.

Age UK has called for fairer tax incentives to encourage people on modest incomes to save for a pension. Many people are simply not aware that pension contributions qualify for tax relief. The DWP’s recently-published research, Attitudes to pensions 2012, shows that only 46 per cent of respondents knew that money paid into a private pension qualifies for tax relief – and this percentage has actually fallen since 2006 when 53 per cent got the question right.

In addition, there are other issues for people with small pension pots which often come as an unpleasant shock to smaller savers.

For example, the trivial commutation limit remains at £18,000 and the tax-free cash lump sum is 25 per cent of the lifetime allowance, however much or little is saved. While this may appear logical, the effect is that someone with a trivial commutation lump sum will get only £4,500 tax-free, while someone with the (new) maximum of £1.25 million could get a tax-free allowance of £312,500. The current rules also create some real complexities for small pension savers, for example in order to qualify for trivial commutation all pension savings must be drawn within a twelve-month period.

People on low incomes need some reward for tying up their savings until retirement, and tax relief also provides a cushion against ups and downs in investment performance. However, in the context of auto-enrolment, it is time for a broader look at pensions tax relief, and whether there is a better way of using the money to encourage pension saving.

Jane Vass is head of public policy at Age UK


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Andy Robertson-Fox 14th December 2012 at 11:25 am

    This is merely a test posting. Having tried several times today without success!

  2. It’s about time Age UK stood behind the frozen pensioners. For years they have done nothing whilst successive governments have stolen their annual cost of living increases. Shame on Cameron, Webb and age UK.

  3. “Pension changes are a missed opportunity” Is this title a joke or what?
    For over sixty years the Pension Minister (or whatever he was called back then) has missed every opportunity he possibly could, to change that hateful, cruel policy that freezes the UK State Pensions of over half a million UK State Pensioners.
    They are the tiny 4% of Britain’s state pensioner population that are being punished daily, by retiring to a “politically incorrect” country where their pension is frozen for as long as they live.
    Can Age UK tell me why this shameful issue is continually ignored by them? Can they tell me why UK citizens who have contributed fully to the UK State Pension scheme are not receiving an amount equal to their UK counterparts – or for that matter an amount equal to their UK counterparts living in the EEA USA and many other non-frozen countries?
    Can someone who pays UK tax on their pittance of a pension – as I do in Canada – NOT be entitled to an uprated pension? Especially when I do NOT and CANNOT claim any other UK benefits?
    Can Age UK tell me how this so fair??
    Can Age UK tell me what they are doing about it, because this problem is not going to go away. The only way it is going to disappear is for the UK to fix it!

  4. Andy Robertson-Fox 15th December 2012 at 3:17 am

    It may well be that the triumvirate of Osborne, Duncan Smith and Webb have missed a possible opportunity of giving a greater incentive and award for saving in these proposals.
    What is more than clear is that they have missed the opportunity to right the wrong of decades…the frozen pension scandal. That 4% of all retired UK citizens world wide should be denied the right to to receive the annual uprating is plain and simple discrimination. When working they contributed to the NI Scheme on the same terms and conditions as the other 96% but now, in retirement, they are barred from claiming under the same terms and conditions.
    No legal, moral, financial or administrative justification for this policy which, as Senior Cabinet Minister Oliver Letwin said, “is a product of history not rationality”
    So while AGE UK may well feel that it has an obligation to challenge these new proposals there is, I believe, a far more pressing priority in pursuing government to abolish the iniquitous frozen pension policy…Jane Vass Head of Public Policy, time to get moving!!

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