Association of Consulting Actuaries chairman David Fairs has challenged the Chancellor and Shadow Chancellor to calculate the tax liability created by their pension proposals.
Fairs is concerned that an overly complex pensions tax system will lead to the closure of more private sector defined benefit schemes. It is calling for a government-led forum to be established to simplify the tax treatment of pensions.
Fairs says: “The pension tax framework is overly complex and undermines much that the Government has done in terms of simplifying State Pensions and increasing flexibility in pension design and how benefits are taken.
“Removing tax relief for those earning more than £150,000 in reality means valuing total remuneration for all people whose basic salary is £80,000 or more because by the time you add on all other benefits, including pensions it is probable that you would exceed the £150,000 threshold. This is a huge amount of work for the pensions industry to raise at most £10,000 or so in tax from anyone actually implemented. And of course the existing approach to valuing pensions would need to be fundamentally altered to do this.
“It is wrong that the highest earners receive the greatest incentive to save into pensions but there has to be a better way of distributing incentives to save and capping reliefs than the methods now being proposed.
“The ACA wants a more straightforward, less anomalous system that can only be achieved by the next Government working together with the pensions industry and employers to create a new framework. We need a clear framework that incentivises individuals to save more for retirement.
“My fear is that an overly complex tax regime will ensure the few open defined benefit schemes will close and we will see defined contribution arrangements as the only retirement savings vehicle outside of the public sector. Indeed, we might see employers promoting corporate ISAs rather than longer term saving through retirement schemes.
“We therefore urge the next Government to quickly establish a forum to bring together interested parties.”
Both the Treasury and Shadow Chancellor’s office had not responded at the time of publication.