Chancellor drops plans to end or alter tax relief on pensions
07 March 2016
After much speculation about what would be announced in next week’s Budget, George Osborne has decided not to go ahead with any changes to tax relief on pensions.
In July 2015 the Government published Strengthening the incentive to save: a consultation on pensions tax relief to find out if there was a case for reforming pensions tax relief to strengthen incentives to save and offer savers greater simplicity and transparency, or whether it would be best to keep with the current system.
The CIPP Policy Team issued two surveys to the payroll profession, one in conjunction with HM Treasury. In response although there was broad agreement that the current system of tax relief on pensions is complex and not widely understood, there were a wide range of opinions on how pensions tax relief could be simplified. There was a common theme throughout which was that regardless of the chosen taxation method for pensions, having a simple system communicated clearly would have the biggest impact on pension saving.
Payroll Professionals are used to dealing with change but the administrative burden that any option for change would present is daunting; any alternative is a complex process for payroll and pensions experts alike.
We lobbied for a minimum of two years implementation time if changes were to be brought in as it is of vital importance to software developers to have enough time to introduce the comprehensive and fully tested functionality upon which payroll departments rely. It is those administering the payroll that have to ensure that individuals continue to be paid accurately and on time.
The CIPP welcomes the decision and are very pleased that the Government has listened to the concerns of payroll and pensions professionals and decided not to pursue any changes at this time.
In a BBC news report there were varying views:
Labour's shadow chancellor John McDonnell said Mr Osborne was "yet again ducking a big decision".
Campaigners said he had missed a "huge opportunity" to tackle pension inequality and help the lower paid.
But others said he was right to protect existing reliefs, and that radical reforms would have created new risks and imposed new administrative burdens on employers.
Former Liberal Democrat pensions minister Steve Webb, who now works in the pensions industry, said Mr Osborne had been right to resist changes. He called for a "period of stability" in pensions policy in the interest of encouraging people to save for the long term
Conservative MP Mark Garnier, who sits on the Treasury select committee, acknowledged that the present system "massively favours those people who are earning more money" and told Today he favoured "a fundamental rehash of the pension system". However, he said a flat rate relief would have been "quite difficult to administer" and more thought should be given to what reforms would work best.