With the upcoming general election and the manifestos soon to be released, we have been considering our wish-list of what that we would like to see in terms of pension policy.
The cost of pension tax relief
Since the Treasury published Strengthening the incentive to save: a consultation on pensions tax relief, the cost of pension tax relief has been widely debated.
During the campaign it’s likely that we’ll hear about how pension tax relief should be scrapped to stop tax breaks for high earners and that ending higher rate tax relief could pay for more nurses / teachers / police.
What is really needed on this issue is sensible policies on the big issues with pensions – taper relief, lifetime allowance, action to prevent over a million low earners from missing out on tax relief.
It is worth noting that pension tax relief cost the treasury £37.8bn in 2017/18, but to put that in relative terms, the total cost of other tax reliefs in the same tax year was around £380bn. Pensions in payment contributed £18.3bn income tax that year too.
In any other year, taper relief wouldn’t warrant a mention let alone occupy a couple of column inches in a manifesto. But this is no normal year, and with the NHS another huge battleground, 12 months of reports of NHS workers cutting back hours and overtime to avoid excessive tax charges has made taper relief a real issue (even if few actually understand it).
Despite tapering rules themselves being widely disliked in the industry, opinion is divided about the idea behind them: to limit the tax relief going to high earners, who are argued to be those in least need of an incentive to save. Among the electorate, there may be little sympathy for tax advantages being limited for those earning greater sums.
But for advisers, as long as these rules exist there will be a large pool of individuals who may require some additional help to make the most of their retirement savings.
It is thought that around 300,000 people are affected by the taper and the Exchequer will benefit from it to the tune of about £1bn this current tax year.
In an ideal world, we would like a holistic review to simplify the means of controlling the cost of tax relief or if that isn’t possible a removal of the taper until it is.
The state pension
The state pension is always a contentious issue during an election campaign. We will likely hear pledges to end the injustice for WASPIs and promises to extend the triple lock. In an ideal world, we would all like a long-term stable policy, that is clearly articulated.
In addition, it would be useful for consumers if we could break some of the myths about National Insurance; who pays it and what it pays for.
Recently, former pensions minister Baroness Ros Altmann called for reform of the way the state pension can be accessed. She stated that “healthy life expectancy varies by around 19 years across the country, yet the state pension system will continue to increase the starting age. Unlike in a private pension, you cannot receive a penny early”.
While we wouldn’t necessarily agree with this, it demonstrates the differing views and nature of the state pension and shows that the incoming government must introduce a long-term, stable policy that is clearly articulated to all.
Whoever take on responsibility for pensions in the newly elected government has a huge to-do list in the next parliament, starting with the points we have suggested.
Greg Kingston is group communications director at Curtis Banks