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Labour pension reforms condemned by industry

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
02/03/2015

Pensions industry commentators have responded negatively to Ed Miliband’s pension pledges, after he confirmed that a Labour government would make numerous changes to the pension system in order to fund a reduction in tuition fees.

Miliband’s proposals included reducing the lifetime limit on tax-free pension savings from £1.25m to £1m, cutting the tax-free sum saved per year from £40,000 to £30,000 a year, and scrapping ‘additional rate’ taxpayers’ 45 per cent tax relief. He stated that these reforms would free up £2.7bn to spend on lower tuition fees.

Huw Evans, director general of the Association of British Insurers, noted that while “the pensions and savings industry supports reform of tax relief”, “this is not the way to do it.”

He went on to say that the government should focus on “reforming the pension tax relief system as a whole”, in order to “make it fairer, better value and encourage saving from middle earners.” Evans believes Miliband’s approach – “piecemeal cutting back the existing system to pay for other policy objectives” – could be disastrous.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said that rather than “targeting the super-rich”, Miliband’s measures would “penalise responsible middle income workers who want to provide for their retirement and make sure they aren’t a burden on the state.” He went on to castigate politicians in general for viewing retirement savings “as a convenient piggy bank which can be raided to pay for election promises.”

John Cridland, director general of the CBI, said that while he welcomed greater focus on higher education funding, the changes could discourage people from saving for the long-term. “A further hit on reasonable expectations on pension tax relief may be politically expedient but risks damaging a savings culture that needs nurturing if the state is to cope with the financial burden of retirement benefits in the years to come,” he said.

Stephen Green, a senior consultant at Towers Watson, said that as there are no plans to index the lifetime allowance to inflation, its real value is expected to fall throughout the next Parliament in any case – “but Labour’s plans mean it would fall further and faster.” Green believes that the prospect of a reduced retirement allowance “should be a real concern” for high earners.

Miliband’s proposals, however, appear to have not worried the markets; shares in major pension providers either remained static, or enjoyed increases. For instance, shares in Legal & General rose by 0.65 per cent, and shares in Just Retirement by 4.7 per cent, after the announcement was made. Aviva and Friends Life registered mild falls of 0.9 per cent and 0.35 per cent respectively.


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