Experts have condemned Labour leader Ed Miliband’s proposal to cut the limits of annual and lifetime tax-free savings in pensions.
Miliband plans to slash the annual allowance form £40,000 to £30,000, and the lifetime allowance from £1.25m to £1m, to fund a £3,000 reduction in university tuition fees.
The proposal has come in for heavy criticism from the pensions industry.
Fidelity Worldwide retirement director Alan Higham says the reductions in the lifetime allowance for tax-free savings will leave pensioners on defined contribution schemes deals worse off than their defined benefit counterparts.
He says: “£1m sounds a lot but at current annuity rates if you were to buy a typical inflation linked pension it would only be £26k a year.
“But if you are lucky enough to be promised a DB pension then you can get £50,000 out of the regime.
“It goes too far and there’s a massive unfairness between DB and DC pension-holders like public sector employees.”
Informed Choice executive director Nick Bamford says by further tweaking the tax-free ceilings, Labour risks further undermining confidence among savers.
He says: “Nobody in the last 20 years has had a simple platform on which to save for the future with any degree of confidence.
“It’s almost as if they are not thinking straight. All the consumer really wants is an investment in which they can safely save feeling sure that they aren’t constantly getting clobbered.”
The National Association of Pension Funds chief executive Joanne Segars agrees: “These incremental shifts in pension tax policy are not the right way to manage the future retirement savings of millions in the UK. Such a move by any government threatens to undermine the confidence of pension savers, employers and schemes alike. These changes are likely to affect many middle-income savers, such as senior nurses and senior teachers.
“This is not an issue on which any future government can afford to make knee-jerk policy decisions upon. We need a proper debate on tax in the broader context of pensions and retirement savings, and this should be overseen by an Independent Retirement Savings Commission to ensure the long-term needs of savers remain at the very heart of the Government’s approach.”
ABI director general Huw Evans adds: “The pensions and long-term savings industry supports reform of tax relief but this is not the way to do it.
“We need a focus on reforming the pension tax relief system as a whole to make it fairer, better value and encourage saving from middle earners, rather than just piecemeal cutting back the existing system to pay for other policy objectives”.
However, The Financial Inclusion Centre founder Mick McAteer says taxpayers are already paying too much to subside pension saving.
He says: “If you have an industry that is very inefficient then this allows them to continue using taxpayers’ money to encourage people to save, and perpetuates indiscipline.”