A “radical overhaul” of pensions taxation is necessary due to incompatibility issues with some scheme designs that could arise from the Pension Schemes Bill, the Association of Consulting Actuaries chair David Fairs has warned.

“Our Pensions Tax Committee is currently working through what a possible radical overhaul might look like – removing at a stroke the necessity for annual allowance and lifetime allowance calculations. I believe all the various pension bodies are ready to engage with government on a genuine simplification of pensions taxation.”

Fairs said it is “tempting to ask that the industry should be given a sabbatical from further pensions change whilst it digests all the change put in train by this and the previous government”.

“My suspicion is that the £38bn or so given in tax relief to pensions will provide too attractive a target for politicians whatever their colour. And there is an increasing challenge that the relief is poorly focused.”

On the issue of AE, the ACA chair improving the pensions of the low paid and of women, could be achieved by removing the lower limit on band earnings, thereby increasing by 50 per cent contributions for those earning as little as £15,000 per year.

“Removing the lower limit would also mean that the threshold to auto-enrol employees could be reduced without reducing contributions to trivial amounts. Furthermore, the auto-escalation of employee contributions to pensions has proved particularly successful in the US. Each year, employees could be automatically moved to a higher employee contribution percentage but with the option to opt for a lower contribution if that was unaffordable.”

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