AJ Bell has launched a new parliamentary petition demanding government commit to retain key pension tax incentives, ending damaging speculation over the future of pension tax-free cash and tax relief.
The petition calls on government to make a public commitment to a Pension Tax Lock, pledging not to alter key pension tax incentives – tax-free cash entitlement and tax relief – for at least this Parliament.
Signatories can participate by adding their name to the petition here, with 10,000 signatures forcing a government response. The petition has already attracted over 2,500 signatures.
AJ Bell has long campaigned for a Pension Tax Lock, which would deliver much-needed certainty for savers and enable millions of people to plan for retirement with confidence. The newly launched petition now allows customers, advisers, the public and other stakeholders to support the campaign.
Tom Selby, director of public policy at AJ Bell, comments:
“When people save in a pension they enter into a tax pact with the government. Take home pay today is sacrificed for the long-term, on the proviso that it will instead be taxed on withdrawal and comes with the added benefit of a 25% tax-free element.
“That is the foundation upon which the retirement plans of millions of Brits are built and requires a firm commitment to stability from government, matching the long-term financial decisions of savers making preparations for retirement.
“Individuals contribute to a pension in good faith and should not be subject to endless speculation government may move the goalposts before they access their money.
“Committing to a Pension Tax Lock would show government is serious about a fair deal for workers, allowing today’s savers to enjoy the same pension tax incentives as their parents. It would also lay down the gauntlet to any future government tempted by a pension tax raid, offering genuine security to savers through a policy commitment that doesn’t require any increase in government spending.
“The economy should benefit too, as more stability in the pensions system should give people confidence to boost their contributions – a large chunk of which will be invested in UK business. For an administration struggling desperately in the opinion polls a policy such as this, with appeal to older and younger voters alike, should be a no-brainer.”
Background
Pension Tax Lock
AJ Bell has consistently campaigned for government to commit to pension tax stability, with a focus on key tax incentives – tax-free cash (Pension Commencement Lump Sum) and tax relief.
Constant speculation about potential changes to retirement saving incentives, particularly tax-free cash, undermines confidence in the pensions system and leads to people making irreversible decisions based on fear, rather than their long-term financial goals. This is an unacceptable position given pensions form the cornerstone of long-term financial planning and personal financial responsibility.
Furthermore, it runs counter to wider government efforts to boost pensions adequacy and drive greater levels of investment, including in the UK economy.
The Tax Lock proposal calls for a government commitment to the two core tax incentives in-built in the pension system:
- Tax relief: Pensions operate on the basis of a tax deferral system whereby individuals are expected to pay tax in retirement but receive tax relief on contributions at their marginal rate.
- Tax-free cash: Individuals are entitled to take 25% of their pension tax-free, normally referred to as tax-free cash or a Pension Commencement Lump Sum. At the very least this entitlement should not be reduced from its current level of £268,275.
Petition
The petition, registered on 1 October, can be found here.
Anyone can start a petition as long as they are a British citizen or UK resident. If a petition receives 10,000 signatures the government must respond. If it reaches 100,000 signatures it will be considered for debate in parliament.
Petition text:
Introduce a Pension Tax Lock to help protect retirement savings and incentives
The Chancellor should introduce a Pension Tax Lock: a commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions. We believe this would help ensure retirement savings are protected and people can save with confidence.
We believe this simple commitment could put an end to the speculation seen ahead of every Budget – speculation which we think erodes confidence in long-term saving and can all-too-often lead to people making poor, sometimes irreversible, financial decisions.
We think this would come at zero cost to the Exchequer and would allow people to save for retirement with more confidence. We feel it could support the government’s twin aims of delivering pensions adequacy and boosting economic growth.
