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Review of pension tax relief - Avoid reverse!

14th September 2015

Avoid reverse

My daughter turned 17 on Sunday and went for her first driving lesson. She got on well and came back full of beans. In my first driving lesson in a very old Rover 213 I was a flustered bag of nerves and upset my formerly calm and patient instructor by managing to slap the gearstick from 3rd to 2nd whilst attempting 3rd to 4th. Neither the engine nor the instructor were very forgiving.

Given the current economic conditions and a Government with a 5 year mandate to balance the books it seems all too easy a target to reduce tax relief available on payments into registered pensions schemes.
There’s been some very public forward momentum with pensions – such as more coverage in the press than ever before in terms of the new pension freedoms giving people more choice and not lashing them to a poor value annuity. And in the ongoing implementation of workplace pensions, giving those never before entitled to an employer sponsored private pension the opportunity to build up a pot of money, plus the mechanisms now in place to pass residual pension funds on. By limiting tax relief on contributions, one could argue that just as the momentum is going from 3rd to 4th gear it’s suddenly like slamming into reverse gear and will very quickly undo much of this good work.

Without an effective Government charm offensive to bed in such a change any benefit of removing or limiting tax relief on pensions (is there one?) will be negated and then some by the simple message ‘pensions are being robbed of their value!’
With the demographic time bomb, a term not used too often these days, still lurking ominously like an unending oil slick round the next bend, surely the idea and emphasis of both pension freedoms and workplace pensions is to encourage more private savings, ease the burden on the state and cascade wealth down through generations to improve future prosperity.

I do believe that as a society we have entered something of a renaissance which could see private pensions become as well thought of as the highly successful ISA, in a few years’ time. But the key is to keep momentum moving forward, to allow the beneficiaries to inherit pension funds, receive the income (in some cases tax free) rather than swelling the coffers of life companies, and to begin to spread the new found message that pensions can provide value during retirement as well as significant benefits for future generations.

Avoid loss of momentum, don’t slam it in reverse…

Nick Dean, APFS