View more on these topics

SMF calls for a cash matching plan to offer saving incentives

Centre Forum’s proposal to remove higher rate tax-relief on pension lump sums does not go far enough because it fails to incentivise saving, according to the Social Market Foundation.

Under current rules, people over 55 qualify for a tax-free lump sum up to the value of £450,000, which is set to be cut to £375,000 next year.

In a paper published last week, Centre Forum says those earning over the 40 per cent income tax threshold should pay tax on the lump sum at the appropriate rate. It says this would increase income tax take from future pensions in payment by 5 per cent.

But speaking to Money Marketing, SMF senior researcher John Springford says: “Getting rid of higher-rate relief on the lump sum would have only a marginal effect. It stops people drawing down big lump sums before retirement but it does not encourage saving.”

Springford says the current approach should be replaced by a more positive incentivised saving scheme that would offer the same benefits to all savers.

He says: “Under our proposals, for every pound you put in, the state would put in a flat amount up to an annual limit. It would be less regressive because everyone gets the same. It would encourage saving and be easier to understand.”

Under the proposal, income tax would be paid prior to contribution to a pension and so would not be charged on money drawdown.

Recommended

Bank holds base rate at 0.5% and QE programme at £275bn

The Bank of England’s Monetary Policy Committee has decided to hold base rate at 0.5 per cent for the 32nd consecutive month and to hold quantitative easing at £275bn. The last rate change was on March 5, 2009, when it was reduced from 1 per cent to 0.5 per cent. On the same day, the […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment