After revising the proposals for restricting tax relief the new coalition government have improved proposals for tax relief on pension savings but there are still concerns.Mercer a global leader for trusted HR and related financial advice, products and services belives that four areas still need to be addressed to ensure a health environment for the UK’s retired.
The coalition announced the new regime last month stating that a personal annual pension saving allowance of between Ã‚Â£30,000 and Ã‚Â£45,000, with at least a 40% rate of tax on pension contributions over the threshold. It will raise Ã‚Â£3.5 billion for the Government and will potentially affect many final-salary scheme members and high earners.
Deborah Cooper, head of Mercer’s retirement research group, said: “Certain elements of the current proposals will accelerate the demise of defined benefit (DB) occupational pension schemes unless changed – otherwise, employees on incomes just above the higher rate tax threshold could inadvertently become liable for tax charges greater than the amount of pension they have actually accrued.
“The loss of more DB schemes will precipitate a reduction in the overall savings level and increase the degree of risk individuals have to bear, resulting in more pensioners with insufficient incomes. This is not in the long-term best interests of the UK economy and will pull the rug from underneath the UK’s occupational pension system.
“The proposals also incentivise the current generation of senior management to drop out of pension provision. Hit those in companies who make the decisions on pensions and you undermine enthusiasm for the whole regime, to the detriment of us all.”
Mercer believes that the current proposal will inhibit employers’ ability to provide pension schemes that are strategically right for their business and that support the long-term wealth creation of their staff.
It also believes that increasing the complexity and cost of DB pension provision will encourage employers to dumb down pension provision to the minimum acceptable level, which may not be in the best long-term interests of employers and employees, and the nation.