There has been no summer lull for anyone wanting to keep up to date with the Government’s pension movements. The industry has been showered with a huge number of consultations and reviews by a new administration keen to make its mark.
Scrapping Labour’s proposed complex restrictions to higher-rate pension tax relief in favour of a lower annual allowance has gone down well.
However, a growing number of commentators say they would rather see this allowance lowered further in exchange for tax relief being kept at the marginal rate.
It may well be that the annual allowance changes are just a stepping stone to more radical reform of the tax relief system as the Government looks to slash costs.
In this month’s Retirement Strategy, Lee Jones hears from some industry voices, including Scottish Widows head of pensions market development Ian Naismith, who believe that fundamental reform of pension tax relief is required.
In our cover interview, Centre for Retirement Reform director general John Jory also suggests that the money currently spent on higher-rate pension tax relief could be put to better use.
There is no doubt that pensions tax relief spending is going to come under greater scrutiny from politicians but they should be very cautious that any alternatives do not damage parts of the pension system that are working pretty well. It is always worth repeating the fact that, on many occasions, the full level of tax is simply deferred rather than relieved and that any alternatives do not lead to individuals facing double taxation.
A central aim of Jory’s thinktank is to push for a universal state pension at or above the current means-testing level, an expensive move which, as Jory acknowledges, will have to be self-funded through other pension changes. The thinktank suggests this could be partly funded by a more radical increase in the state retirement age although tax relief reform could also be added to this equation.
A higher basic universal pension has got to be the best foundation for every other aspect of pension reform and we know current pensions minister Steve Webb believes this to be the case.
With Chancellor George Osborne and Work and Pensions Secretary Iain Duncan Smith squabbling over money, it may be a tough argument to win with the Treasury. But the success of other pension reforms, particularly Nest, may rest on creating this solid foundation.