Warning over pension tax changes
Filed under: Pensions
The Government risks undermining people's confidence in retirement saving if it decides to "fiddle" with the pensions tax system, a pensions trade body has warned.
The National Association of Pension Funds (NAPF) made the warning ahead of Chancellor George Osborne's Autumn Statement next week and also urged him to do more to tackle the "damaging effects" of quantitative easing (QE) on pensions.
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The maximum amount that people can pay into a pension annually that is subject to tax relief is £50,000. But there has been speculation that this could possibly be cut back to £40,000 or even £30,000 a year. The annual allowance was previously reduced from £255,000 to £50,000 last year.
The NAPF said that changing the pensions tax system could put people off being automatically enrolled into a pension. A landmark scheme which will eventually see up to 10 million people enrolled into workplace pensions began in October, starting with larger firms.
She said that middle income earners could be hit with significant tax bills as a result of any changes.
Ms Segars said: "The Government must not fiddle with the pensions tax regime again. With auto-enrolment now rolling out, it is key that the Government sticks to its commitment to reinvigorating workplace pensions so that employers can provide good pensions and employees can save for their future."
The NAPF said the effects of QE have contributed to pension fund deficits hitting record levels. This in turn means companies are diverting resources away from creating jobs and innovating to plug the pension holes, the NAPF said.
QE has forced gilt prices up, reducing the yields that investors such as pension funds make on them. This has helped to increase pensions deficits.
Ms Segars said: "The Chancellor needs to acknowledge the damaging effects of QE for pension funds and the employers offering them. He must give pensions some respite by indicating that an adjustment to discount rates based on gilt yields is helpful. This could free up more cash for businesses to spend on investment and jobs, helping the wider economy."
© 2012 Press Association