Aegon builds budget bucket list for pensions and savings


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Steven Cameron of Aegon claims that noNow is the time for targeted interventions, not for fiscal tinkering or radical reform of pension tax breaks.

Steven Cameron, director of pensions at Aegon, (pictured) comments:

Reform of pension tax relief

“With so many retirement priorities and changes, the fall budget is not the time for sweeping pension tax relief reform. A move to a flat rate tax relief for pensions, rather than the current system where relief is based on the rate of income tax paid would be far from straightforward. This would be particularly difficult for defined benefit plans and could mean that average to high salaries, including doctors in public sector plans, would face heavy tax bills. This would only benefit the Exchequer if the reductions in incentives for higher rate taxpayers were greater in total than any increased incentives for base rate taxpayers. There are no quick wins here for the Chancellor, the change would be very complex and any savings for the Exchequer resulting from less tax relief would take a long time to materialize.

“In his spring budget, the Chancellor froze the lifetime allowance, the maximum that an individual can save in his pension on a tax-efficient basis. During the 5-year freeze, an increasing number of middle-income earners as well as the highest paid will reach the maximum they can save in a pension with tax breaks. This reduces the justification for further cuts in incentives for higher rate taxpayers.

“Currently, the government is pushing those who run defined contribution pension plans to make significant changes to where they invest members’ funds to tackle climate change and to invest more in infrastructure and start-ups. to boost the economy. The reduction in tax incentives for many savers risks sending mixed messages.

Tax tinkering on pensions

“Many chancellors have envisioned sweeping reform of pension tax breaks, before jumping into the ‘too hard’ pile and instead launching into a series of generally unwanted pension tax hacks. However, there are some targeted interventions that would be particularly welcome around the annual cash purchase allowance, ‘net pay’ schemes, increasing the normal minimum retirement age and improvements in labor market performance. automatic affiliation. “

People over 55 caught off guard by the annual cash purchase allowance

“As individuals seek to replenish their retirement savings after the pandemic, perhaps after a spell of unemployment, many may need the flexibility to pay larger sums. But the little-known annual cash purchase allowance means anyone over 55 who has accessed their pension flexibly, perhaps to support it during the lockdown, has a limit of £ 4,000 per year on what she and her employer can pay into a defined contribution pension. Many will be caught off guard and we would love to see this increased to at least £ 10,000 to give individuals more freedom to get their retirement planning back on track. “

Net compensation anomaly

“The government must keep its commitment to address the anomaly of the ‘take home pay’, which means that non-taxpayers of pension plans who have chosen to administer tax breaks on the basis of what is called a “take-home pay” will lose compared to plans operating the alternative “relief at the source” approach. The HMRC gives non-taxpayers on “source relief” plans base rate tax relief, but their counterparts saving in net compensation plans receive nothing, which means they are effectively the losers. Solving this problem would be a welcome “leveling up” measure for lower income earners. “

Normal minimum retirement age

“The budget and the accompanying budget bill provide the Treasury with an opportunity to drop or amend controversial proposals on how to implement an increase in the normal minimum retirement age. This is the earliest age at which people can generally access retirement and, with few exceptions, is expected to drop from 55 to 57 from April 2028. But the proposed transitional arrangements risk decades complexity for pension plans and their members.

“The Treasury has sought to ‘protect’ a small minority of individuals who are in plans whose rules by sheer accident in history give an ‘unqualified right’ to receive benefits at the age of 55. well-intentioned, these protections would create horrific complexity and multiple unintended consequences for little real benefit. The pension industry is united in calling for a radical overhaul to keep things simpler and fairer at all levels, while helping savers understand their rights so they can plan for their future.

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