The chancellor George Osborne announced in last month’s Summer Budget that the government was considering radical changes to how pension savings are taxed. He indicated then that this could include a shift from allowing tax free contributions to one where pensions are tax free on exit, as is the case now with ISAs.
“This so called ‘ISA-style’ tax treatment of pension contributions is a fundamental and far-reaching change to the principles of pension savings, which could pose considerable risk to the Government’s aim of creating a savings culture in the UK,” Loney said.
“There is no evidence that the promise of tax free income, 25-30 years into the future, would be believed by the public given the volume of changes to the pensions system over the last 25 years.
“Consequently, there is a real risk of a significant fall in savings, which are already too low in the UK,” he said.
However, the government claims increases in life expectancy and the shift away from final salary defined benefit pensions towards defined contribution pensions means new incentives are required to make sure more people take responsibility for their pension savings to meet their needs in retirement.
It’s consultation on the proposals for reform of the system closes on 30 September 2015.
Loney did agree that it was vital to reform the current tax relief system to make long term saving fiscally neutral for all. He said the incentives needed to focus on those with lower incomes, to create a more realistic and lower risk way forward.
“This could also enable the abolition of the lifetime allowance,” he said.
Royal London currently employs Steve Webb, the former Liberal Democrat politician – who lost his ministerial position to Ros Altmann following the Conservative’s majority victory in this year’s General Election – who is responsible for developing policy on issues such as retirement savings.