Concerns over the future of politically motivated changes to the UK’s pensions system have led to calls for change from UK and international financial advisory firms.
UK pensions advisory firm AJ Bell and global financial advisory company deVere Group, have both criticised the practices and motivation surrounding recent changes to taxation changes to UK pensions, with an independent commission being touted as one route to stop such actions in the future.
In an interview with International Investment, deVere Group chief executive Nigel Green criticised the UK government’s “constantly fiddling, constantly making changes” and its approach to pension reforms both in the UK and internationally, pointing to the recent surprise 25% levy on QROPS schemes outside of the EU as an example.
But Green, pictured left, also questioned theUK government’s motivation for recent controversial tax changes. He added that billions of additional tax revenues that have been created for the UK since the introduction of pensions freedom was an example of the government doing “the wrong thing”
“The government did the wrong thing when they made pensions so flexible,” said Green. Flexibility is good but just allowing someone to cash in their pension? That is totally wrong.”
“People cash in their pensions, governments gain tax and the revenues are massively accelerated just because people are cashing in their pensions and that is wrong.”
Green accused the (UK) government “playing around” with people’s lives and pensions, pointing that as retirement for some is far away in the future, pensions freedom is an “easy option” for creating tax revenues [from early encashment].
“It is something that nobody is going to complain about. It is wrong that they are are constantly fiddling, constantly making changes,” said Green.
‘Horrific, unnecessary complexity’
And earlier today Tom Selby, senior analyst at AJ Bell, called for the formation of an independent commission that could propose reforms based on the long-term interests of savers and in the process remove the some of the “horrific, unnecessary complexity” that he also believes exists in the current system.
The calls came as the UK government released its latest figures highlighting that personal pension contributions in the UK hit a record high in 2015/16 with nine million people contributing £24.3bn into personal pensions, exceeding the pre-financial crisis high of £20.9bn in 2007/08.
However, the average annual contribution per individual has fallen from a peak of £3,690 in 2011/12 to just £2,690 in 2015/16. Net tax relief – which takes into account tax taken from pensions in payment – was £24.8bn (2014/15: £21.8bn)
Selby, pictured left, said that the Treasury’s pension tax relief bill is rising because automatic enrolment, “the central plinth” of the Government’s savings strategy, has been successful in boosting the number of people saving for retirement in the UK.
However, Selby points that the rising cost of pension tax relief is a concern. “While a net annual bill of almost £25bn is a scary number, the key is that average savings levels per person remain way down compared to the peak of 2011/12.
Pension tax relief axe?
“There has already been speculation that Chancellor Philip Hammond will take the axe to pension tax relief in his first post-Election Budget, and numbers such as these will inevitably add fuel to the fire. But it is vital that the embryonic savings culture being nurtured in the UK is not wrecked by a Treasury desperate to raise cash ahead of Brexit.
“Pensions have suffered from years of chopping and changing of tax incentives. We have reached a point in time where the political sting needs to be taken out of the pension tax debate through the establishment of an independent commission.
“Such a commission could propose reforms based on the long-term interests of savers and in the process rid us of the some of the horrific, unnecessary complexity that exists in the current system,” Selby concluded.