- Following George Osborne’s U-turn on pension reform Scottish Friendly warns that the current pension system is out of date and discriminates against those on lower incomes
- Current system offers perks to higher earners at the expense of those earning less
- Tax free lump sum should be disbanded in favour of direct incentives, such as matched contributions
Savings and ISA provider Scottish Friendly is calling on the Government to radically reform pension legislation in the 2016 Budget and not simply give in to the demands of the wealthy and well- advised.
The mutual argues that the current pensions system is out of date and discriminates against those on lower incomes. The whole system needs to transform to ensure that the Government not only encourages, but also facilitates, pension saving for everyone. A fairer more straightforward pensions system is required. A system that does not just pander to the needs of the wealthy.
Scottish Friendly calls for the 25 per cent tax-free lump sum withdrawal allowance to be abolished immediately and replaced with incentives that help lower income households to save for their financial future.
Neil Lovatt, product director at Scottish Friendly said: “Osborne’s decision to back down on pension reform is not only disappointing, it is a clear move to benefit the wealthy at the expense of hard working households trying to save for their future. The Government needs to take a fairer stance on the provision of saving vehicles including the tax-free lump sum withdrawal when it comes to pensions.”
Lovatt continues: “The generational deal with pensions is that you should only pay tax once on your savings, so it is tax free saving at the point of entry but taxed on the way out. As it stands, allowing the 25% tax free lump sum on exit means that higher rate tax payers in particular benefit both ways.
“It’s an enormous tax break for the wealthy and well-advised that creates inequality in savings.”
Lovatt concludes: “The current system serves higher rate tax payers’ interests, enabling them to effectively move tax payers’ money into their bank accounts, at the expense of lower income households. Given that the Government has retreated on any move to introduce a flat rate of pensions tax relief, it would at least go some way if the tax free lump sum allowance was disbanded in favour of direct incentives, such as matched contributions which favour lower and middle income families.”