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Paraplanner views split on idea of single rate pensions tax relief

29 January 2019

The Organisation for Economic Co-operation and Development (OECD) recently suggested the UK should move to a single rate of pension tax relief or an ISA pension system. 

In a recent Parameters survey we asked paraplanners for their views on the suggested change. An ISA pension system received little support – just 4% of respondents thought this was the way forward –but the adoption of a flat rate system was favoured by 40% of respondents, compared to 36% who wanted to keep the current system.

Parameters survey results
Adopt single rate relief           40%
Keep current system               36%
Adopt ISA pension system      4%
Unsure                                    20%
The majority of paraplanners in support of adopting single rate relief believed it would make the current system fairer.

One commented: “I believe having a single rate of pension relief (say 30%) for all would encourage more people at the lower end of the earnings scale to save more whilst still allowing high earners a decent tax break. It would also simplify things.”

Another pointed out: “It does seem unfair that high rate tax payers get more tax relief – perhaps set it at mid-point between basic and higher so that those on lower salaries have more incentive.”

The sentiment was echoed by a fellow respondent, who called the current tiered rate “grossly unfair” given the bulk of the UK population have pensionable earnings and savings at a “conservative level at best”, and said the pensions gap will never improve unless the “average family also get a healthy boost to pension savings”.

However, among respondents in favour of keeping the system as it is, one commented: “It is not really a relief, it is a tax deferral. If we restricted higher rate or additional rate relief then people who own their own business who get employer-only contributions will continue, in effect, to get those higher rate reliefs creating further anomalies in the tax system.”

Other paraplanners felt moving the goalposts would do more harm than good.

One said: “Pensions are already complicated and we keep going through changes, which is not good for people’s confidence to invest in a pension.”

Another commented: “UK pensions are already complex and bringing in even more changes may ripple into other aspects of pension funding/relief.”

One paraplanner warned that meddling with pension relief rates could also affect long-term care.

“The country has a significant problem in funding care for the elderly, which pension pots can be used for. Taking away relief now could also exasperate costs for long term care. All pension contributions should be free from tax irrespective of an individual’s position.”

Few respondents threw their support behind the idea of an ISA system, with one respondent suggesting that such a model would see savers “lose the benefit of growth” on the tax relief and the ability to draw 25% tax-free in retirement.

Another said that adopting an ISA pension system would mean the government would still need to make sure that salary sacrifice and other net pay arrangements were “still attractive and easy to set up” for both employers and employees.

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