Changes to pensions taxation outlined in the Budget 2009 will have a negative impact on pension saving, says the National Association of Pension Funds (NAPF).

In a letter to MPs, the NAPF has said that the proposals break the long-established EET principles upon which UK pensions are based, by withdrawing tax relief on employee contributions. The implementation of a tax charge on the individual on their employer contributions also breaks this principle. The concern is that future Government may impose the same changes on lower incomes.

The tax simplification framework, introduced by this Government in 2006, is also broken by these proposals, and the NAPF said these constant changes to legislation could undermine scheme sponsor confidence in the stability of, and the Government's commitment to, pensions. The NAPF also said the people affected by these changes are also likely to be the ones who make decisions about company remuneration policy, and should they become disengaged from company pensions, there is a risk that lower earners would in turn by negatively affected.

Although these changes are directly relevant to the UK's 230,000 highest earners, modest earners are also likely to feel their force in the medium-term. The call on MPs to re-think these proposals follows chief executive at the NAPF, Joanne Segars, giving evidence to the House of Lords Economic Affairs Sub Committee on 20 May 2009, and outlining that NAPF's concerns.

"The Budget changes send out the wrong messages on pension saving," explained Segars. "The Government must think again about the wider impact of the new measures as the changes are likely to affect more than just top-rate tax payers.

"The Government's proposals break a long established principle tax policy in this country and the constant instability in legislation does nothing to help rebuild badly needed confidence in pensions."

The £3.1bn that the Budget proposes raising in additional tax revenue has also been highlighted as doubtful by the NAPF.

- Pensions Age June 2009

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