Three-Quarters of firms say pension tax is too complicated

A large majority of employers believe the current pension tax structure is too complicated and that any reform should better help lower income groups, according to a survey conducted by the Association of Consulting Actuaries (ACA).

The research in which 308 employers of various sizes responded, found that 75% of firms believe the pension tax code is too complex and requires simplification. In addition, two-thirds believe any reform should target helping lower income groups, even if other groups are worse off as a result. Meanwhile, 69% also believe the Tapered Annual Allowance should be abolished, even if that causes a reduction in the general annual allowance.

Jenny Condron, the ACA chair said: “The findings in this our third report on our 2019 Pension trends survey have underscored employers frustration with the damaging impact of the ‘tightening’ of pension tax reliefs in recent years through lower Annual and Lifetime Allowances, and the complexity that this has introduced. There is widespread demand for reforms to simplify a tax regime that is now well past its sell-by date.

“It is clear that any reforms being considered by the Treasury must not be short-term tweaks for public sector employees only—reform must be even handed and extend to resolving problems that impact on all wealth-generating sectors of our economy.”

Reform for retirement savings

This year also saw an increase in the number of responding employers who said current restriction have caused higher income employees to leave their firm’s pension scheme from 30% last year to 44% this year.

“The present complexity results in some individuals being put off saving for retirement. Further, many key decision makers within businesses have opted out of involvement in their company pensions due to their individual pension tax positions,” Condron said.

“We see many employers deterred from establishing and maintaining pension schemes for their staff beyond the minimum require by auto-enrolment,” she added.

Due to the complexity of the current tax law, firms require extra advice and have higher implementation costs while individuals may hire specialist services to better advise filling out their tax return. This leaves both firms and individuals less to invest in retirement with.

Among the employers surveyed there is broad support for tax reform and Condron said that she hoped there would be bipartisan support for reform in the new parliament.

“It’s vital that changes are properly considered and, if at all possible, that there is some cross-party agreement on the political aims and the means by which they are delivered. Any major revisions to the regime must be robust and enduring, enabling employees to plan for long term pension saving.

“The public, working in both the private and public sectors, across all income groups deserve a regime that is simple to understand, that encourages savings (and does not disenfranchise decision makers); one that does not bring unwelcome tax surprises ‘out of the blue’, as at present,” she said.