IFS pension tax proposals include positive and negative elements

The Pensions and Lifetime Savings Association (PLSA) comments on the Institute for Fiscal Studies’ Blueprint for a Better Tax Treatment of Pensions report.

Nigel Peaple, Director of Policy and Advocacy at the PLSA, said: “The PLSA’s own in-depth assessment of a wide range of reform proposals published last July, “Five Principles for Pensions Taxation”, showed that many of the reforms often discussed in the media are unlikely to provide substantial help to most people saving for retirement, although sometimes they do redistribute financial support from one group to another. It also found that substantive changes to pensions tax relief are likely to undermine confidence in pension saving and, if they are to save money for the Exchequer, often involve retrospective taxation.

“The IFS’s proposed set of reforms include both positive and negative elements, when assessed against our Five Principles: promoting pension adequacy, encouraging the right behaviours, being fair to savers, being simple to adopt and administer, and being enduring and sustainable.

“For example, on the positive side, we agree with the IFS that it makes sense to keep the UK’s long-established system of providing up front tax relief, the “EET” system, as it is not possible to change this in a fair way while the UK has both defined benefit pensions as well as defined contribution pensions. More importantly, abandoning up front pensions tax relief would undermine confidence in pension saving, be complex to administer and, we believe, would be likely to result in less pension saving. We also welcome the measures to encourage and incentivise the self-employed to save into a pension and the IFS’s proposals to introduce sensible changes to the way in which the lifetime allowances for DB and DC pensions should be measured.

“However, the PLSA is concerned that applying taxation to employer NI contributions, even if replaced by a variable subsidy, might discourage employer pension payments. We believe that their suggested changes to the 25% tax free lump sum would reduce a very popular and widely understood element of the pensions tax regime.”

Click here to read more about the PLSA’s research into alternative pensions tax relief regimes.

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]