A former senior adviser to the Government says the pension freedoms set out in the Budget were motivated by wanting to bring forward tax revenues and could leave pensioners worse off.
The Financial Times reports that Chris Daykin, who was government actuary for the UK from 1989 to 2007, is concerned about the Budget reforms which will allow savers to take their entire pension pot as cash from age 55 from next April. Those who decide to strip out their fund will be taxed at their marginal rate.
Daykin told the newspaper: “I believe a primary driver for Treasury was a desire to bring forward tax revenues.
“The assumption must be that many retirees, given the chance, will take their money out as quickly as possible. . . So, presumably, the Treasury are assuming cash is taken quickly, if not immediately, and that it is mostly going to be taxed at standard rate.
“Previously, very few people would have taken benefits out so quickly that they incurred the penalty rate of 55 per cent.”
Daykin admitted while the reforms could increase saving through pension plans, he warned there were dangers associated with encouraging savers away from annuities.
He said: “There is no doubt a risk that many people may spend their retirement monies too quickly and end up on a very low income.
“A better balance between welfare considerations and freedom considerations would lead to a requirement to annuitise enough to provide an underpin of lifetime income, with freedom to do what you like with the rest.”
Daykin also criticised the Treasury for failing to make public the modelling behind its forecasts which predict an increase in tax receipts following the reforms, saying this “can only increase suspicions that the estimates are not very robust.”
The Treasury told the FT it “wholly rejected this unfounded criticism.”
It added: “Our radical pension reforms are about giving people more choice when they retire, and have been almost universally welcomed by consumer groups and pensions experts.
“With the creation of the new independent Office for Budget Responsibility the costing of Budget measures is now subject to unprecedented transparency and independent scrutiny, and the details behind the costings were certified by the OBR and published alongside the Budget.”
His comments follow similar criticism from the Organisation for Economic Co-operation and Development, which argues the reforms do not protect savers from longevity risk.