The Government must use the Emergency Budget to help revitalize and support
good workplace pensions, industry experts said today (Friday).
The National Association of Pension Funds (NAPF) outlined a number of areas in
its Emergency Budget submission which the Government should focus on.
Among them, it said that plans to change pensions tax relief would hit far more
people than the higher earners being targeted. Instead it has put forward an
alternative that would generate similar revenues for the Treasury.
The NAPF is also calling for greater issuance of long-dated and index-linked gilts
to help pension schemes. And it outlined seven principles that could help bring
objectivity to the debate on public sector pensions.
Joanne Segars, NAPF Chief Executive, said:
“The UK economy is in a very difficult place, but the Government must not
neglect the need to boost saving for retirement.
“In particular, we urge them to rethink the recent changes to pensions tax relief.
The move would ensnare many others beyond the high earners being targeted
and would weaken the approach to workplace pensions.
“Our alternative will be less damaging to pension saving and cost far less to
The last Government used the Finance Act 2010 to change the way pensions tax
relief is given for pension saving for those earning over £150,000.
The NAPF fears the proposals will cost between £2.5bn to £3bn to implement. It
also believes the changes will harm the pensions of those earning far less than
the target group because senior corporate decision-makers will disengage from
workplace pensions, thus eroding employer interest in the schemes. And the
application of the new rules to defined benefit schemes will catch people in the
new and less generous tax regime.
Instead the NAPF proposes that the Government adopts an alternative
approach to pension tax reform which will still limit the tax relief available to high
earners, but do so in a way that is much less harmful to pension provision. Its
proposal involves lowering the amount of pension contribution eligible for tax
relief down from today’s figure of £255,000 down to around £50,000.
The NAPF also warned the Government that there is a shortage in the supply of
long-dated and index-linked gilts, which help pension schemes manage the risks
of pension provision. It said the Emergency Budget could provide practical
support to pension schemes and the employers that sponsor them by further
increasing the proportion of issuance towards long-dated and index-linked gilts.
Ms Segars said: “This is a win-win-win solution for employers, pension schemes
and the Government. Skewing issuance towards longer maturities would provide
the Government with a cheap and secure source of finance at a time of
exceptionally large public sector deficits.”
Further details on the NAPF’s views gilts issuance and its seven principles for public sector reform are shown in the attached Emergency Budget submission.
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