Following on from parts one and two, let’s take a look at the future.
On Budget day, 16 March 2016, the government published a summary of responses to the consultation on pensions and tax relief. This was not an official government response, merely a summary of the main points that came from respondents.
The following were noted as the key themes that were most featured:
• Stability – an agreement on tax relief needs to be reached so that individuals can plan for their retirement.
• Communication and education – in general, communicating the saving public about the importance of pensions was a priority, as was financial education.
• Consistency – a perception of fairness in the tax relief system would engage individuals with pension saving.
• Incentives – more people will be incentivised to save if there are greater incentives to save in the first place.
• Implementation – any change needs to be done correctly with a realistic timetable for reform.
Various models were suggested by respondents, ranging from a flat rate of relief, amendments to the existing EET or a move to TEE. Interestingly, about 50% of respondents said that the current EET system was not complicated it – it was just perceived as complicated. Complexity did arise when factors such as the AA and LTA came into the equation. However, apathy and lack of trust in government was cited as undermining the incentive to save. To sum up, a consultation that had 450 responses is difficult, save to say that there was no real consensus on a preferred way forward.
However, clearly there needs to be a way forward. Currently, there is clearly an uneven and, therefore, unacceptable playing field, one that the previous pensions minister, Baroness Altmann, was quite vocal about. Maybe the new parliamentary under secretary of state for pensions, Richard Harrington, will do something to progress this, though it must be pointed out that the NPA anomaly is ultimately an issue for HM Treasury and HMRC to sort out.
I wonder if there will be ever be a “right time” to make any changes. Government priorities are difficult. On the one hand they have the simple and transparent, personal responsibility, building on auto-enrolment and sustainability principles. Although, what sticks in my mind is the fact that the current system costs £billions in lost revenue for the Exchequer and is fundamentally flawed when it comes to fairness.
How can it be fair that, depending on the individual’s marginal rate of tax at the time contributions are paid, one person enjoys tax relief at 20%, another at 40% and a third person at 45%? Then, of course, there are the ones that are not getting any tax relief at all (the ones between £10 and £11K), despite the fact they are paying contributions.
I am not sure we are any further forward with this, except the government can truly say that they consulted with stakeholders on the subject. But we haven’t heard the last of this.