Hargreaves Lansdown head of pensions research Tom McPhail says the practical challenges of major pension tax relief reform are “horrible” and it should be left alone.
The future of tax relief was thrust into the political spotlight after the Pensions Policy Institute published a paper outlining options for reform.
Labour has signalled it is planning major policy changes in this area, while the Treasury has opened the door to a public debate on the future of pension tax relief.
Speaking at a Lansons Communications and Financial Services Forum pensions briefing in London last week, McPhail said: “A fairly senior individual at HMRC quietly thanked us for opposing tax relief changes because they have been trying to explain to the Treasury just how difficult it would be to operationalise and implement it.
“We saw what happened in May 2009 when tax relief was changed for higher earners by the last Government. It was administratively horrible.
“With major reform you would have to start imposing retrospective tax charges for employer pension contributions.
“It would lead to the perverse result that could see people opting out of pensions to avoid paying a tax charge for money put into their pension by their employer. There is a whole load of bureaucracy thrown in for free as well. It’s just a really bad idea.”
McPhail warned other reform options, such as cutting the tax free lump sum and lifetime or annual allowances, would hit middle earners.
Now: Pensions trustee chairman Nigel Waterson said: “Tinkering with anything that helps people get into pensions, even if they are well off, is a bad idea. When I was a young lawyer in the City I only joined the pensions scheme because of the tax relief.”