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Government plans to reform pensions tax relief do not go far enough to protect the UK's saving culture, according to industry commentators.
The Treasury yesterday launched nine documents for discussion and consultation, each covered proposed changes to tax policies, including the replacement of existing measures for the restriction of pensions tax relief with a drastically reduced annual allowance in the region of £30,000 to £45,000.
The mooted revamp was hailed by KPMG pensions head Andrew Cawley as ‘fairer’ than the current system. He added that they would ‘have a less detrimental effect on UK pension provision generally’.
But Mr Cawley went on to warn that the reforms would hit more people than were currently affected, albeit to a lesser extent, and they would also ‘diminish the general level of pension savings and at the same time create further administrative burdens for employers and trustees’.
He added: ‘The tight timescale will place very great demands on all concerned over the first quarter of next year and beyond. Without prompt action, some pension scheme members may find they face an unexpected and unwelcome tax bill for 2011-12.’
George Bull, head of tax at Baker Tilly, was in broad agreement with Mr Cawley, saying, 'Adoption of a much-reduced annual allowance... risks a "one club golf" approach: it may be simple, but it won’t always be the most effective.'
The chief executive of the National Association of Pension Funds, Joanne Segars, said: ‘By looking to reduce the annual allowance, the Treasury is now facing the right way... but much depends on other variables that are yet to be confirmed.’
Ms Segars welcomed ministers’ plans to use ‘flat factors’ for valuing define benefit (DB) contributions as ‘important to keep the system as simple as possible’ – although she was disappointed that the Government ‘seems to be pressing ahead with including past service in the valuation of DB pension rights.
'At a stroke this will drag many people on modest earnings with final salary pensions into the net. There are still important issues to tackle.’
Chris Sanger, head of tax policy at Ernst & Young, backed Ms Segars's remarks by commenting that the new pensions consultation ‘provides the greatest challenge for policy-makers’.
He added: ‘The Treasury seeks to maintain the same tax take while also simplifying the restrictions on pension contributions… This will be a difficult balancing act to achieve.’
