Summer Budget 2015: Chancellor George Osborne has announced that the government is to consult on a reformation of pensions tax relief.
It will publish a green paper shortly setting out the various options, which range from fundamental reforms, for example moving to a system which is tax exempt like individual savings accounts (Isas), to less radical changes, such as retaining the current system and altering the lifetime and annual allowances.
Osborne (pictured) said: “Britain isn’t saving enough. I am open to further radical change. Pensions could be treated like Isas: you pay in from taxed income, and it is tax free when taken out, and inbetween it receives a top up by the government.”
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “Today’s announcement of a wider review of pensions tax is welcome news.
”We are pleased the government has wisely chosen not to rush into any new wider reforms or jump to conclusions about what will work best as a reform, such as taxing pensions in the same way as Isas. This will be an important step and we will work with the government to secure a clear understanding of the long-term implications of any decisions.
“Experience shows us that long-term success in pension policy is built on a shared understanding of a problem, a shared building of the policy solution and a shared responsibility for delivering that solution. For this review to succeed, it must look at taxation of pensions in the bigger picture of what genuinely incentivises people to save consistently over the long-term for their retirement.”
Malcolm McLean, senior consultant at Barnett Waddingham, added: “Bringing pensions and Isas together under the same tax regime would be a major change and all the ramifications need to be carefully thought through.
”As always with pensions, which are a long-term savings vehicle, the change over from one system to another would require some fairly complex transitional arrangements to be put in force to smooth the operation going forward. It is good that the government is consulting on all of this and not making the mistake it made with the pension freedoms which were brought in hastily and without full consideration of all the issues that could arise.
“Overall this has been yet another eventful Budget from the Chancellor, albeit with major and radical decisions still to be taken over the coming year. It looks very much like pensions will continue to be big news over the next few years.”