On the go: Rumours that the Treasury is planning to raid pensions have been branded “tragic” and “crazy” by speakers at a Hymans Robertson webinar, who warned that any reforms harming incentives to save could undo the work put in to boost retirement standards.
Pensions Expert reported in June on the rumours that Treasury officials have drawn up a list of three reforms to the way pension contributions are taxed, with the aim being to find the money to pay the costs of the coronavirus pandemic and lockdown policies.
The first proposal is reported to be a reduction in the lifetime allowance from just more than £1m to £800,000 or £900,000.
A flat-rate tax proposal has also been made. Currently, higher earners get a tax relief rate of 40 per cent, while lower earners get 20 per cent. The suggestion is that this be changed to around 30 per cent for both.
It is thought this would simplify the tax system, lower the cost of administering all of its many top-ups, and see only higher-rate taxpayers lose out.
The third proposal is for a new tax on employer contributions.
Industry figures roundly condemned the proposals when the rumours first circulated, warning that it would be a “slap in the face” to people who have already worked hard to save for a good retirement, while disincentivising current and future savers from putting more money aside.
Speakers at Hymans Robertson’s webinar on Wednesday on the future of defined contribution and long-term savings issued their own warnings against the rumoured proposals, arguing they would undermine industry efforts to boost retirement saving.
Alison Hatcher, chief executive of HSBC Retirement Services, said: “I think all this wonderful work we’re doing is going to be pulled apart by tax if we let it. Why on earth would you remove the incentives when everyone’s doing all they can to get people to save?”
“It sounds absolutely crazy to me,” she said, adding that the Pensions and Lifetime Savings Association, of which she is a board member, “knows this as well”.
The industry would benefit from “holistic thought processes” around the strategy for long-term savings between the Treasury and the government, she continued.
“If we don’t have the support from regulators and the Treasury it works against us. And so my wish would be to bring holistic viewpoints to some of that policymaking.”
Gail Izat, workplace pensions director at Standard Life, said she “violently agreed”.
“It would be tragic if we undid all the great work that auto-enrolment achieved through the unintended consequences of not taking that holistic view,” she said.
