Tom McPhail, Head of Policy at Hargreaves Lansdown commented: “We have asked the Treasury to open reviews to explore options for reform. On pensions in particular, where there has been speculation around the possible cutting of higher rate tax relief, we have argued reform is essential but this should be the result of a considered review rather than a quick fix approach. Simply cutting higher rate relief would be unnecessarily brutal.”
Research conducted by Opinium for Hargreaves Lansdown in January 2020 shows:
- 51% of people are worried about tax rises – and only 13% of people have no concerns at all.
- The younger you are, the more likely you are to be worried about tax rises. 64% of those aged 18-34 are concerned compared to only 39% of those aged 55 plus.
- People in Northern Ireland are most likely to be worried about tax (71%), followed by people in the North East (70%) and those in London and the South West (61%).
The twin successes of auto-enrolment and the Pension Freedoms have changed the dynamics of pension saving. The pension tax system is increasingly out of kilter with people’s working lives and the needs of society. As an incentive to save, tax relief no longer works; 74% of people in pensions either don’t understand tax relief or don’t even know it exists. The bulk of tax relief goes to higher earners.
The various controls in the system such as the Tapered Annual Allowance, the Money Purchase Annual Allowance and the Lifetime Allowance are increasingly tripping up the unwary and penalising those who are simply trying to do the right thing for their future.
Hargreaves Lansdown have proposed the Treasury undertakes a review of the whole system of incentives to save. They have also put forward a possible new model based around a ‘double your money’ system. Every pound an individual pays into a pension would be doubled, either by their employer or through a government top up. They believe this makes a compelling approach for all areas of society to save for retirement.
They have also put forward proposals for reform of the Money Purchase Annual Allowance, based around the existing recycling rules. This would reduce the risk of shutting the door on significant future pension saving, for those who have tapped into their retirement savings in their late 50s.
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