Changes to state pensions will also affect private pension provision, and reversing the removal of dividend tax credits may not be the simplest way of helping pension funding says John Ball, head of defined benefit pension consulting at Watson Wyatt.
Ball says contracted out rebates to defined benefit schemes may be reduced if the State Pension Age rises. He says it will be easier for employers to increase normal pension ages in defined benefit schemes above 65 but, unlike the Government, they can only do this for pensions promised in the future and not for those that people are already expecting. He added that savers in defined contribution schemes may have to change their investment strategy to reflect a later retirement date or save more to prevent one.
Ball says: “Reversing the effects of the 1997 tax change may not mean reversing the tax change itself. Abolishing dividend tax credits was a classic stealth tax and reversing it would be a stealth tax cut. If a future Government did find the resources to reward pension saving, it may choose to do so in a way that people can more easily understand.”