THE Association of Consulting Actuaries (ACA) has called on the main political parties to work together on a “fundamental review of the pension tax framework” after May.
The organisation said further reductions to tax relief on contributions were likely whoever won the next election, and that any changes further complicate an already over elaborate system, Professional Pensions reports.
This comes after Labour leader Ed Miliband revealed plans to cut annual and lifetime caps on tax relief on contributions to fund a reduction in university tuition fees.
In a letter copied to the major parties, ACA chairman David Fairs (pictured) called on them to cooperate with each other and the industry to create a sustainable system.
He said: “I am requesting that you all cooperate in a fundamental review of the Pension Tax Framework after the general election and not use the relief as a soft target in the forthcoming campaign.”
The organisation also published a paper outlining the two main problems with the current system: the constant chipping away at allowances was eroding while excessive complexity was also putting off savers and employers.
It called for a fundamental review beginning with a consideration of how much tax relief government wanted to grant and how that should be distributed.
The ACA also outlined several principles for an overhaul:
• The new regime should incentivise individuals explicitly to save for retirement while they are working and encourage employers to make suitable arrangements;
• The new regime should replace the current regime and not require, for example, creation of two separate regimes to run in parallel dealing with past and future savings;
• The new regime should, ideally, be simpler to understand and operate than the existing regime; where it cannot be simpler it should at least be fairer and intuitive, with anomalies and perverse outcomes eliminated;
• The new regime should be capable of targeting tax relief in line with the Government’s intentions; and
• Opportunities to manipulate the system should be minimised.
It said different systems could be applied to different forms of pension, and recommended a simple matching contribution for defined contribution.
- There should be no “knee jerk” changes to the pension taxation system after the general election. We note that even a reduction in lifetime allowance might look a simple change – but it brings a new range of individuals into a potentially complex net and creates a new “protected case” for schemes to have to deal with – so its impact should not be underestimated.
- he next government should initiate a fundamental cross-party review of the pension taxation system working closely with employers, pension providers, consultants and administration providers to ensure the new system is practical.
- The review should ensure that full details of the current reliefs, and their distribution between various constituencies, are understood.
- Changes to pension taxation should have cross-party support so that any new framework can endure.
- Any new framework should be given an appropriate lead time so that those who manage schemes can change systems appropriately and employers and individuals can plan properly for any new change.
- Once in place the new framework should not have any changes made to it for many years.
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