The Liberal Democrat’s pledge to review pensions tax relief and look into introducing a single rate of tax relief has been welcomed by those in the industry.
The party’s manifesto, published today, said that it would establish a review to consider introducing a single rate of tax relief for pensions, which would “be designed to be simpler and fairer and would be set more generously than the current 20 per cent basic rate relief”.
The People’s Pension director of policy and market engagement Darren Philp said that the current tax relief system is “not fit for purpose” as it does little to act as an incentive to save. “We welcome this commitment to look at tax relief and believe that a flat rate of relief is the right route forward. This will address the unfairness in the current system and will put tax relief on a sustainable and long term footing.”
In addition, Hymans Robertson partner Chirs Noon said: “We welcome the commitment to review pension tax relief. It’s become an incoherent mess after seven years of government meddling. However, introducing a single rate of tax relief is unlikely to be the silver bullet that fixes this issue. It creates complexity with final salary pension plans (that already have beneficial tax treatment) and is likely to make pension saving less effective for the middle earners who are already the most under-saved.”
However, Barnett Waddingham senior partner Malcolm Mclean, who criticised the Liberal Democrat’s lack of pensions in its manifesto, has said the review “doesn’t take us any further forward”.
He also argued that the withdrawal of the winter fuel allowance for higher rate tax payers would not produce huge savings and would be administratively difficult to operate. “I would be surprised if after the extra administrative costs are taken into account the savings amount to much more than £100 million a year. On its own it hardly seems worth doing.”