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Government urged not to jump into further major pension changes
This is very much in line with our thoughts, which we conveyed to government in our response to the consultation, saying that the industry still needs time to adjust to recent developments, such as the pension freedoms.
We also believe that substantial reform could risk undermining the confidence of savers and employers.
The Government could make small-scale changes to simplify the system, such as indexing annual and lifetime allowances in line with earnings growth, which would restrict the number of people affected by the current complexities. We also recommend a renewed effort to communicate the underlying principles of the existing system, especially for members of defined contribution schemes.
Treating pensions like ISAs would have the effect of taxing both those currently contributing to pension schemes and those currently in receipt of pensions, particularly if there is a one-off transitional tax charge on existing funds to bring them into line with a new system. In the long term, such an approach could remove the incentive from savers and therefore reduce tax receipts from pensions.
Former pensions minister, Steve Webb speaking at a Punter Southall event stated:
"To fundamentally change the current tax treatment of pension savings would be a huge leap into the unknown.
"Treating pensions like ISAs would mean that you paid tax up front but then all the money in your pension pot would be tax free. Given the new freedoms for people aged 55 and over to use their pension pot as they wish, removing taxation would end one of the major factors which currently encourage people to spread their pension through their retirement.
"It would be like taking the brakes off a Lamborghini and could result in too many people running down their savings too quickly".
Alan Morahan is head of DC consulting at Punter Southall
Supplied by REBA Associate Member, Punter Southall Aspire
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