Pensions: Positive Signals Balanced by Tax Relief Cuts

SUMMER BUDGET 2015: Pensions experts welcome talk of bringing pensions and ISAs more in line, but are concerned that cutting pensions tax relief will disincentivise savers

Holly Cook 8 July, 2015 | 3:36PM
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The Chancellor's Summer Budget contained some important news for pension savers, both expected and unexpected, giving pensions experts plenty to think about. 

Dean Mirfin, technical director for Key Retirement: 

"The change in the annual pension contribution limit for those with incomes over £150,000 may seem trivial but older workers who are trying to fund their pensions in the lead up to retirement, who have good levels of income, will be punished at a time when they should be encouraged to contribute as much as possible."

Richard Parkin, head of retirement for Fidelity Worldwide Investment:

“This latest initiative to limit pension tax relief for top earners disenfranchises even more layers of senior management. This could undermine the willingness of companies to value pensions as part of their benefits systems. 

“Fiddling with pension tax relief to fund giveaways in other areas is an example of great politics but bad policy especially considering that a review of pension tax relief is now underway. These presumably temporary changes will be difficult to operate and create further complexity for the industry at a time when it’s still trying to deliver the pension freedoms.”

Paul Latham, managing director for Octopus Investments:

“The tapering of tax relief on pensions contributions for those earning over £150,000 means that affected investors and their advisers may want to explore alternative tax efficient investments, such as Venture Capital Trusts and Enterprise Investment Schemes, to complement their existing retirement planning arrangements.”

Iain Sayers, chief executive for the Association of Investment Companies:

“The changes announced today affecting pension tax relief for high earners are likely to support increased demand for VCTs as a tax efficient way to save. They also have tax free dividends, which is important following today’s changes to taxation of dividends. VCTs invest in small companies which can grow into household names in the future, helping to create jobs and economic growth for the UK.”

Sarah Lord, managing director for Killik Chartered Financial Planners:

“The notion of making use of pension tax relief whilst you can is a very big hint that it could soon be abolished and so consumers must take this into account.”

Shaun Port, chief investment officer for Nutmeg: 

“A consultation on bringing the tax treatment of pensions into line with that of ISAs could build confidence in saving.  ISAs are still trusted by the population because they haven’t been damaged by the government. New flexibility and making pensions more like ISAs will improve engagement and encourage people, especially younger people, to save early and often. But the Chancellor should still encourage savings through the tax system.

Joanne Segars, chief executive for the National Association of Pension Funds:

“It’s deeply disappointing to see politicians once again syphoning cash from tomorrow’s pensioners to pay the bill for today’s political priorities. Ensuring a decent deal for today’s savers and tomorrow’s pensioners will only come from a stable pension system on which people can depend not to change overnight. Pension saving shouldn’t be treated as a secret ATM for Government finances. Tinkering with the tax treatment of pensions from one Budget to the next does absolutely nothing to build confidence in them, and constant change may even discourage people from saving for retirement.”

Ian Dyall, head of estate planning for Towry:

“While a consultation period will take place to determine a wider reform of pensions tax relief, the fact is that over £50 billion is saved by taxpayers via tax relief on pensions, more than total government expenditure on defence. On the flipside, tax relief encourages savers to build a healthier personal pension pot, which ought to mitigate the State’s financial burden for those in retirement.”

Malcolm McLean, senior consultant for Barnett Waddingham:

“The extension of Pension Wise and the launching of a comprehensive nationwide marketing campaign has to be welcomed given the importance of this service in ensuring that the pension freedoms are properly understood and accessed.”

Read more expert reactions to other budget announcements here.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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