A taxing question

The government wants to make sure that the right incentives are in place to encourage saving into pensions. And so HM Treasury is currently consulting the pensions industry on whether there’s a case for reforming pensions tax relief to offer greater simplicity and transparency, or whether it would be best to remain with the current system. They’re calling it ‘Strengthening the incentive to save’.

Overall, there’s generally still a low level of understanding and appreciation of exactly how the complicated pension tax system works – particularly amongst the lower paid. While people may struggle to understand the tax system for pensions, that doesn’t mean the system is flawed, or that changing it on its own would improve understanding. It should be borne in mind that no tax system can ever be perfect, so it would be wrong to strive for unattainable perfection and to end up with an unduly burdensome regime, or one that favours defined benefit provision over defined contribution arrangements in the private sector.

On balance, we are in favour of maintaining the current system of tax relief. We continue to be supportive of the government’s efforts to create an environment where individuals are encouraged to take responsibility for their pension saving so that they are able to meet their aspirations in retirement. For that reason, we believe it is incumbent on the pensions industry as a whole to partner with the Government to better communicate the benefits of the system to those saving into pensions.

Read more about our thoughts on the government’s consultation, and how we reached that conclusion in our consultation response paper.

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