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Review of pensions tax is welcome news

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Joanne Segars (pictured), Chief Executive, National Association of Pension Funds (NAPF) comments on the changes to pensions announced in the 2015 Summer Budget, including the Chancellor’s announcement to introduce a taper on higher rate pensions tax relief along with the introduction of a wider review of pensions taxation… 

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.

Major changes in the taxation of pensions, such as a move to TEE, ask savers to believe a future Government will be able to keep the promises made by a Chancellor today. And when it comes to the rules governing pension taxation, experience shows events rarely turn out that way.

It’s deeply disappointing to see politicians once again syphoning cash from tomorrow’s pensioners to pay the bill for today’s political priorities. Ensuring a decent deal for today’s savers and tomorrow’s pensioners will only come from a stable pension system on which people can depend not to change overnight. Pension saving shouldn’t be treated as a secret ATM for Government finances.

Tinkering with the tax treatment of pensions from one Budget to the next does absolutely nothing to build confidence in them, and constant change may even discourage people from saving for retirement.

It is good news that the Government has recognised our concerns about the challenges in ensuring savers are protected and supported in this market. We look forward to working with the Government to help them shape further plans for this initiative.

The NAPF and its LGPS member funds will engage constructively with the Government on this initiative; but it’s clear that pooled investments will work most effectively where they arise out of natural collaboration between funds rather than where funds are forced to invest together.

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