Further pension reform dubbed ‘daylight robbery’
A report compiled by Royal London claims that any move by Chancellor George Osborne to further cut pension support, either through introducing a ‘pension ISA’ or a flat rate of tax relief for all, could be a ‘grave mistake’.
In the July 2015 Budget, Osborne floated the idea of a ‘pension ISA’, a savings vehicle which workers could pay into with today’s taxed income, and withdraw income from tax-free in retirement. Such an approach would turn the existing system on its head. Currently pension contributions attract tax relief and pension drawdowns (when retirees take the income) are subject to tax. The Royal London report describes the concept of the pension ISA as ‘stealing funding from the next generation of public services’.
Another possible change could be the introduction of ‘flat rate relief’, where everyone receives the same tax relief on their pension contributions, possibly 25%, rather than higher rate taxpayers receiving 45% or 40% relief and lower rate taxpayers receiving 20% relief, as is the case today. Royal London describes this as ‘daylight robbery’ and a damaging disincentive, discouraging people from saving into pensions.
The report also argues that, if Osborne falls short of what it regards as these potentially damaging reforms and simply ‘tinkers’ further with pension legislation, that could be the ‘worst of all worlds’, creating more uncertainty and complexity at a time when people need to be encouraged to save more for their retirement.
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 upfront relief combined with the abolition of the lifetime limit on pension saving. Anything else would be a huge missed opportunity”.