Tax
Pensions tax relief proposals 'clumsy' |
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| Tax | |
| Written by Paul Williams | |
| Thursday, 25 March 2010 | |
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Dismissing pensions industry concerns 'diminishes the consultation process'. The government decision to press ahead with pensions tax relief proposals has been criticised as 'clumsy' and ‘extremely disappointing’ Industry groups and retirement, risk and finance consultants Mercer have expressed extreme disappointment that the government has failed to listen to the pensions industry in implementing its policy restricting higher rate tax relief on pensions. Beyond the cost burden, these changes will impose on schemes, there are public policy considerations regarding the consequences if very high earners turn their backs on employer sponsored pension saving, resulting in the closure of high quality schemes for all employees. Even in the detail of the new framework, overwhelming industry dissent has been ignored, bringing, Mercer believes, the credibility of the consultation process into question. In the 2010 Budget documents, the government has confirmed its intention to continue with an expensive and controversial aspect of its proposals: it will be mandatory for pension schemes to pay the tax of very higher earners from scheme assets at the member's request. Mercer believes that this places a huge and increasing burden on trustees. "The government is treating pension schemes like a deep pocket it can dip its hand into when it’s short of cash," said Eleanor Dowling, a Principal in Mercer’s retirement, risk and finance business. "It completely disregards trustee responsibility towards ordinary scheme members, forcing them to act as the agents for an elite group at the expense of the majority of members," she said. Mercer and other industry groups have demonstrated to the government that its regulatory impact assessment underestimates the cost of this new obligation by at least a factor of 10. They have demonstrated interest in seeing whether the Department for Work and Pensions and the Pension Protection Fund (PPF) are in agreement with a radical change such as this, which allows pension scheme assets to be paid to the Treasury to meet a new income tax obligation. According to Dowling, "The government has insisted on imposing a new and clumsy structure on top of the existing and continuing tax relief framework, creating disproportionate and unnecessary costs to pension schemes, employers and the pensions industry." "These changes are being pushed forward by the Treasury despite Mercer, and the majority of industry bodies, having proposed an alternative method of implementation," she said. Dowling warns, "This alternative would retain the efficiency and credibility of the pensions tax system, minimise the administration and cost burden to schemes and the industry, and maintain executive interest in providing pensions to every sector of the workforce." According to Mercer, the pensions industry worked closely with government to formulate and implement the Finance Act 2004 pensions tax regime. This meant radical change for the industry, employers, trustees and members. These stakeholders were promised a simplified, stable regime in exchange for the upheaval caused by the introduction of the new system in 2006. "That regime is entirely disrupted by the insertion of these new rules, and blatantly ignores expert industry views," concludes Dowling. |
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