Nearly half of paraplanners (49%) believe the pensions tax rules need reforming but the vast majority do not believe the Government will act, according to Professional Paraplanners latest Parameters survey.
Just under a third (32%) believe no reforms are needed, while 19% were unsure.
The adoption of a simpler pension tax relief system was considered the most popular (50%) reform, alongside the abolition of the lifetime allowance (50%). Paraplanners also expressed their support for an end to the annual allowance (28%).
One respondent told Professional Paraplanner: “The MPAA and Lifetime Allowance discourage older people from remaining in work. However, the ability to draw tax-free cash should remain as this is an important element of individual retirement planning.”
Another said: “Either the Annual Allowance or Lifetime Allowance should be scrapped as they are incompatible. It would be preferable to have a Lifetime Allowance without an annual allowance so people can save for their retirement as they wish.”
The results of the survey showed that one in six paraplanners (16%) also supported the abolition of higher rate tax relief.
One commented: “I would support the abolition of higher rate tax relief on contributions. I would also want to find a solution to the cumbersome Income Tax treatment of single withdrawals from pensions and the need to reclaim overcharged tax.”
A further 15% said they would like to see a flat rate of pension tax relief at 25% and 13% would like to see a flat rate of pension tax relief at 30%.
According to one paraplanner, a flat rate of tax relief of around 30% would be “fairer and provide more encouragement for lower earners to save for retirement”, whilst reducing the cost of relief overall.
Another commented that the pension tax rules were “too complex and overly beneficial for higher earners. Indexation should be reintroduced for the lifetime allowance. It should be one rate for all.”
Paraplanners agreed that the current pensions system can be complicated and off-putting for pension savers.
One paraplanner commented: “Tapering and carry forward rules, along with pension recycling and lifetime allowance can all easily be misinterpreted/misreported by clients/schemes, and HMRC don’t seem to check the accuracy of half this stuff.”
However, respondents who did not want reforms to take place argued that the current system is fair and offers good planning opportunities.
One paraplanner told Professional Paraplanner: “I think the current pension tax rules offer a fair level of tax relief and incentives to encourage people to put money away for retirement.”
But despite high levels of support for reforms, the majority of paraplanners (62%) do not believe Chancellor Jeremy Hunt will introduce changes to pension rules in the Spring Budget, with only 16% expecting him to announce amends. Just over a fifth (22%) were unsure.
Most felt that a move to change pensions could be politically very difficult and warned that it could risk undoing the good work created by auto-enrolment.
One said: “He should, but there is an election coming up and going after middle England Tory voters’ pensions is unlikely to go down well at the ballot box.”
However, one noted that the mass exodus of NHS doctors and consultants due to existing tax rules could force Hunt to amend either the MPAA, Annual Allowance or Lifetime Allowance. “The reforms to date have not gone far enough and experienced staff are quitting in their droves,” they said.
Do the pensions tax rules need reforming?
Yes 49%
No 32%
Not sure 19%
If reforms were carried out, which of the following would you wish to see?
Adoption of a simpler pension tax relief system: 50%
Abolition of annual allowance: 28%
Abolition of lifetime allowance (LTA): 50%
Abolition of higher rate tax relief: 16%
Flat rate of pension tax relief at 30%: 13%
Flat rate of pension tax relief at 25%: 15%
No reform: 11%
Do you think the Chancellor will amend the pension tax rules in the Spring Budget?
Yes 16%
No 62%
Not sure 22%
[Main image: honey-yanibel-minaya-cruz-6gSyEKq4Pvg-unsplash]
