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Aviva echoes calls for 30% relief on pensions

Aviva is echoing B&CE in calling on the Government to introduce a flat rate of tax relief on pensions contributions of 30 per cent.

In a review of the pension system, published today, the insurer proposes a series of reforms it believes will make retirement saving more attractive.

Aviva says 83 per cent of people surveyed for the review do not understand how they benefit from tax relief.

The firm proposes a “harmonised” rate of relief of 30 per cent be adopted to replace the “confusing higher and lower-rate tax relief system”.

It says the change would benefit and encourage the 85 per cent of people who are basic-rate taxpayers and could add more than 14 per cent to the value of their pension fund at retirement.

Aviva has also proposed allowing early access to pension savings, which is something the Conservative Party is leaning towards, as revealed in this week’s Money Marketing.

The insurer says tying up cash until retirement is a significant barrier to pension saving and proposes allowing pension savers to withdraw a portion of their pension savings before retirement in certain circumstances in a bid to remove the psychological barrier to long-term saving.

Thirdly, Aviva is calling for pension credit to be abolished and replaced with a higher basic state pension of £130 for all instead of the current £95.25 a week. This will be funded by new National Insurance contributions for those above a certain income in retirement.

Aviva says the revised system would be easier to understand, help those most in need and be revenue neutral to the Government.

Head of pensions Paul Goodwin says: “Our proposals will make pensions saving simpler, more attractive and encourage people to save during their working life for the time when they are retired. They simplify pension rules and introduce much-needed flexibility when it comes to accessing money saved into a pension.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. AVIVA missing the mark on pensions
    It’s all well and good AVIVA suggesting that there should be a flat rate of tax relief on pension contributions at 30% but where is the money coming from to do it? There would be a small saving from abolishing the 40% relief but there are far more basic rate taxpayers in this country than higher rate taxpayers so the net cost would be very high.

    We can’t afford it – end of. Some form of pension compulsion, over and above the current NI based system, is the only way forward. We could then afford to increase the state pension to a survivable minimum and retire the thousands upon thousands of civil servants who adminster pension credits, which we know are seldom claimed by those who need them most.

  2. Tax relief on pension contributions: back to basics
    The proposal to set a 30% flat rate of tax relief on pension contributions seems to ignore the rationale for granting tax relief. It is not intended as a reward or incentive to make pension contributions but to avoid the nonsense of double taxation if this is not done. By granting tax relief on contributions and then taxing the resulting pensions in broadly the same manner this means that the income that financed the contributions is being taxed only once.

    I think that any change that ignores this principle and seeks to restrict tax relief on contributions to basic rate but to tax the resulting pensions at the higher rate is fundamentally flawed.

    In keeping with this logic, it would only make sense to switch to a 30% flat rate of tax relief on pension contributions if the resulting pension is also taxed at 30%. Was Aviva advocating this? And if not, why not?

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