Almost two thirds of senior DC pension consultants expect the Chancellor to drop tax relief on pensions in favour of a pension Isa model, according to a survey at the Corporate Adviser summit today.
A poll at the event found 61 per cent of over 40 delegates at the summit, all of who are senior DC figures from major EBCs and corporate IFAs, predict the Treasury will opt to ditch tax relief in favour of a Taxed, Exempt, Exempt (TEE) model. The poll found 39 per cent expect a move to a TEE basis for further contributions, with 22 per cent predicting the Chancellor will opt to move to a TEE basis for both future contributions and existing savings, the so-called ‘nuclear’ option that would see existing pension assets taxed, either through an optional taxed transfer or through a one-off compulsory tax. None thought there would be no change, and 39 per cent expect a move to a flat rate of tax relief.
Lyncombe Consultancy managing director Malcolm Small told the summit he thought the Treasury government would abolish tax relief on pension contributions and move to a TEE structure.
“If I was a betting man – and I am – I would put quite a bit of money on the prospect of some pretty radical change going through,” Small said.
Small said the government would rely on the additional income available from removing tax breaks to deal with the black hole in the nation’s finances.
Small said: “No change is not an option. We have to get national debt down and we have to deal with the deficit.”
Director of the Financial Inclusion Centre, Mick McAteer, who is also a board member at the FCA, agreed that the pensions tax regime would change, said either a move to TEE or at the very least a switch to a flat rate of tax relief, would become a reality ‘sooner rather than later’.
“It is such an obvious thing to do, whether it is April next year I don’t know but it will be sooner rather than later,” McAteer said.
Small warned that an overhaul of the tax regime may come in with little warning – as was the case with the move to freedom and choice regime – but said he hoped government would continue to consult to tackle the more difficult area of change to the taxation of defined benefit schemes.
“This [a move to TEE] is such a massive change, and the potential to get things wrong is so big, it would be good if [government] spoke with the industry to try and get something that works,” Small said.
Chief executive of The People’s Pension, Patrick Heath-Lay was also among those in favour of a move to TEE, arguing a change to the tax system would remove complexity.
“If we remove that tax problem at the back end, it will make it easier for savers to engage with their pension,” Heath-Lay said.
McAteer said a move to a flat rate of tax relief would help encourage lower earners and the self employed to save into a pension.
But he rounded on the new freedom and choice regime, accusing the government of introducing complexity into the pensions system.
“The annuity reforms undermines the ability and propensity for people to save and exposes consumers to greater risks – both market risks and the risk of scams,” McAteer said.
He also claimed advisers failed to understand the products they were recommending as alternatives to annuities, and warned that the industry would be likely to revert back to annuity products in the future.