In a statement issued alongside its new business results for the year ended 31 December 2015, he said the idea of an ISA-style pension saving plan is too short-term in its approach.
Sometimes called the ‘TEE’ system – which stands for taxed, exempt, exempt – the proposed regime would see pension contributions taxed upfront, with no taxation of any investment growth or withdrawals.
Pension disincentive
Loney said the proposals would turn people away from long-term savings over fears of double taxation and “be thrown into an ISA-style system where they need to believe that future generations of politicians will not renege on the deal and tax their savings when they come to withdraw. Hands up anyone who really believes that?”
Currently, pension savers can take a tax-free lump sum of 25%, meaning they are exempt on the ‘way in’ and the ‘way out’ of the scheme.
Praising the chancellor’s “excellent record” of introducing pension freedoms in the first place, he called on him to build on that by reforming the current tax relief system rather than scrapping it.
Under the current system of pension tax relief or ‘EET’, subject to their annual allowance, savers receive relief on contributions, any investment gains are exempt and it is drawdown that is taxed.
The government held consultations with the pension industry between July and September last year on how to improve the system of tax relief to encourage more people to save for their retirement. It is expected to announce the outcome in the spring budget in March
Radical change unnecessary
While Loney agrees the current system is flawed for appearing to favour higher rate taxpayers, a radical overhaul is not the solution.
“He should not take the huge gamble of introducing ISA-style pensions, which would be reckless at a time when the numbers saving into a workplace pension are finally growing, following the successful introduction of automatic enrolment,” Loney said of Osborne.
“This is not the time to turn the system upside down.”
Royal London’s new life and pensions business was up 40% year on year.
By present value of new business premiums, Royal London reported group pension business 27% higher than the previous year, to £2.79m; individual pensions were up 39% to £1.93m ($2.8m, €2.5m); while drawdown saw a 67% rise, taking £1.3m of assets.
