AJ Bell’s Tom Selby discusses reports that the Treasury is planning another raid on retirement savings incentives and argues that it may cause lasting damage to the retirement prospects of ordinary savers
Tom Selby, senior analyst at AJ Bell, comments:
“The Treasury appears to be rolling the pitch for another raid on people’s pensions, this time as part of an economic package to fund the UK’s Coronavirus recovery effort.
“Given the parlous state of the UK’s finances, further speculation about the future of all areas of Government spending – including retirement savings incentives – was inevitable.
“However, all three of the pension tax reforms apparently in the Chancellor’s sights would be hugely risky, hitting directly at heartland Conservative voters and undermining the foundations being laid by automatic enrolment.
“Introducing a flat-rate of pension tax relief, an idea often touted by think-tanks, would present genuine practical challenges and would likely result in tax rises for public sector workers in defined benefit schemes, including many of the NHS staff who have been rightly praised as heroes during the pandemic.
“The lifetime allowance has already been cut to the bare bones, while employers would likely be furious if the Government increased their pension costs just as many attempt to recover from a nightmare year.
“More fundamentally, while dealing with the pandemic is the biggest short-term crisis facing the UK, inadequate retirement saving remains one of the most significant long-term challenges.
“Any further reforms – and in particular cuts in pension tax relief – need to be mindful of the impact on savings incentive over decades.”