While Brexit is on everyone’s lips during general election coverage, the importance of pension policy should not be underestimated, reports Professional Adviser.
With the upcoming general election and the manifestos soon to be released, what would be on a pension wish-list we would like to see ?
The cost of pension tax relief
The cost of pension tax relief is often widely debated, and we’ll hear about how pension tax relief should be scrapped to stop tax breaks for high earners and that ending higher rate tax relief could pay for more nurses / teachers / police.
What is really needed on this issue is sensible policies on the big issues with pensions – taper relief, lifetime allowance, action to prevent over a million low earners from missing out on tax relief.
It is worth noting that pension tax relief cost the treasury £37.8bn in 2017/18, but to put that in relative terms, the total cost of other tax reliefs in the same tax year was around £380bn. Pensions in payment contributed £18.3bn income tax that year too.
In any other year, taper relief wouldn’t warrant a mention let alone occupy a couple of column inches in a manifesto. But this is no normal year, and with the NHS another huge battleground, 12 months of reports of NHS workers cutting back hours and overtime to avoid excessive tax charges has made taper relief a real issue.
Despite tapering rules themselves being widely disliked in the pension industry, opinion is divided about the idea behind them: to limit the tax relief going to high earners, who are argued to be those in least need of an incentive to save. Among the electorate, there may be little sympathy for tax advantages being limited for those earning greater sums.
It is thought that around 300,000 people are affected by the taper and the Exchequer will benefit from it to the tune of about £1bn this current tax year.
In an ideal world, we would like to see a simplification to controlling the cost of tax relief, or if that isn’t possible a removal of the taper until it is.
The state pension
The state pension is always a contentious issue during an election campaign. We will likely hear pledges to end the injustice of delayed state pension ages, and promises to extend the triple lock. In an ideal world, we would all like a long-term stable policy, that is clearly articulated.
Recently, former pensions minister Baroness Ros Altmann called for reform of the way the state pension can be accessed. She stated that “healthy life expectancy varies by around 19 years across the country, yet the state pension system will continue to increase the starting age. Unlike in a private pension, you cannot receive a penny early”.
Whoever take on responsibility for pensions in the newly elected government has a huge to-do list in the next parliament, hopefully starting with the above points.