Mark Sands and Sam Brodbeck
Pensions minister Ros Altmann has won support for her stance that taxing pensions like Isas would be a “big mistake”.
In an interview with Money Marketing last week, Altmann said the Treasury’s Budget proposal to tax pension contributions rather than pensions in payment should be avoided.
She said: “Certainly the current system would be better than just turning pensions into Isas with no lock-in to help people save the money through retirement.
“Letting them take the money out tax-free would be a big mistake.”
Barnett Waddingham senior consultant Malcolm McLean welcomes the minister’s stance.
He says: “It’s good that Ros is standing up for her principles, and not being cowed by the Treasury as some people thought she might be.
“While George Osborne has said tax relief reform will simplify the system, you could end up with everyone having two pensions subject to different rules. The whole thing would be mind-boggingly complex.”
Intelligent Pensions technical director David Trenner says: “The idea of just ditching pensions and putting everyone in ISAs is attractive to a Chancellor who doesn’t want to give anyone tax relief, but I agree with Ros that Osborne is talking nonsense.”
Law firm Pinsent Masons head of pensions strategic development Robin Ellison says trust has been eroded on pensions after years of tweaks to the pension tax system. He says this has not been helped by the consultation on reforming pension tax relief, announced as part of the summer Budget, given it comes months after the Conservatives promised to avoid further changes in the run-up to the election.
He says: “The Government is very keen to move away from the current tax system as it would also change its cashflow, and give it the tax money now, rather than later when people retire.
“But consumers on the whole do not trust the Government to keep their part of the bargain. New Zealand is pretty much the only OECD country to have changed to this system, and savings have dropped dramatically as a result.”
Alistair Cunningham, director, Wingate Financial Planning
What Ros Altmann would prefer for pension tax relief and what will actually happen will be two completely different things.
The potential reforms are more about reducing the tax-free allowance on the way in than they are about reforming long-term savings.
Dennis Hall, managing director, Yellowtail Financial Planning
No country has got its pensions structure right, but somehow we have got to get people to save and offering a carrot later rather than sooner isn’t going to be a big enough incentive. This is not least because of a lack of trust, and a suspicion that politicians will change the rules later.