Constant speculation about potential changes to retirement saving incentives, particularly tax-free cash, continues to undermine confidence in the pensions system, and can lead people to make irreversible decisions based on fear rather than their long-term financial goals.
AJ Bell has launched a new parliamentary petition, calling on the Government to commit to a Pension Tax Lock. By pledging not to alter key pension tax incentives for at least this Parliament, we’re hoping the Government can end damaging speculation over the future of pension tax-free cash and tax relief.
The Pension Tax Lock proposal calls for a firm commitment from the Government to the two core tax incentives built into the pension system, which are:
- tax relief – pensions operate on the basis of a tax deferral system, whereby people are expected to pay tax in retirement but receive tax relief on contributions at their marginal rate; and
- tax-free cash – people are entitled to take 25% of their pension tax free as a Pension Commencement Lump Sum. At the very least, this entitlement should not be reduced from its current level of £268,275.
When you save in a pension, you enter into a tax pact with the Government. Take-home pay today is sacrificed for the long term, on the proviso that it will instead be taxed on withdrawal and comes with the added benefit of a tax-free element.
That is the foundation upon which the retirement plans of millions of Britons are built, and it depends on a firm commitment to stability from the Government – one that matches the long-term financial decisions of savers preparing for retirement.
You contribute to a pension in good faith and should be able to do so without ongoing speculation about whether the Government may move the goalposts before you access your money.
Committing to a Pension Tax Lock would show the Government is serious about a fair deal for savers, allowing today’s workers to enjoy the same pension tax incentives as previous generations. It would also demonstrate a commitment to long-term stability, offering genuine security through a policy that doesn’t require any increase in Government spending.
The economy should benefit too, as more stability in the pensions system could give people the confidence to boost their contributions – a large proportion of which will be invested in UK business. Greater certainty would ultimately support savers, businesses and the wider economy alike.
Add your support
If you agree that pension savers deserve clarity and stability, you can sign our petition and share the link with anyone who may also wish to lend their support. If it receives 10,000 signatures, the Government must respond. If it reaches 100,000 signatures, it will be considered for debate in Parliament.
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