Pensions Tax Relief: Radical reform or daylight robbery?
23 February 2016
In a hard-hitting report published today (Tuesday 23rd), Royal London warns that the March Budget could amount to ‘daylight robbery’ if the Chancellor replaces the current system either with a pension ISA or a low flat-rate of tax relief for all. The report looks at the options for reform and calls for any new system to provide stability and simplicity and stresses that it would be a grave mistake to slash the support available for pension saving. The options evaluated are:
- “Pension ISA” – an idea floated by the Chancellor in his July 2015 Budget, where up-front tax-relief is abolished; with this approach, today’s workers would pay tax today when they are paid rather than tomorrow when they receive their pension; this would, in effect, be the present government stealing funding from the next generation for the public services that they will need as our society ages;
- “Flat-rate relief” – a system where everyone gets the same rate of top-up to their pension contributions regardless of their income; a low flat rate, such as 25%, would take billions of pounds out of support for long-term saving; this is ‘Daylight Robbery’ at a time when society needs more pension saving, not less; the report calculates that a flat rate of 25% would be worth little more than £2 per week extra for basic rate taxpayers – not enough for a cup of coffee at a high street coffee chain - whilst representing a major disincentive to pension saving for higher earners;
- “Tinkering” – the report sets out some of the Chancellor’s options for continuing with recent practice of making further detailed changes to the limits and structure of tax relief without fundamental reform; Royal London argues that this would be the ‘worst of all worlds’ creating yet more uncertainty and complexity and missing a once-in-a-generation chance to simplify the system;
Commenting, Royal London Director of Policy Steve Webb said:
“The March Budget could be the biggest example of Daylight Robbery since the days of Dick Turpin. A pension ISA steals billions of pounds in tax revenues from the next generation who will need the money to fund the public services of an ageing society. And if the Chancellor opts for a low flat-rate of tax relief, he will be stealing billions of pounds today from the support we give to hard-pressed savers. We need a reform which helps savers and offers simplification and stability, such as a generous flat rate of up-front relief combined with the abolition of the lifetime limit on pension saving. Anything else would be a huge missed opportunity”.
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Notes to editors:
- Royal London Policy Paper No. 3: “Pensions Tax Relief: Radical Reform or Daylight Robbery?” is available from www.royallondon.com/policy-papers
About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with Group funds under management of £84.5 billion. Group businesses provide around 9.1 million policies and employ 2,988 people. (Figures quoted are as at 31 December 2015).