Sipps expert against call for flat rate pensions tax relief

A Financial Planner has called for the new Chancellor Phillip Hammond to bring in a 30% flat rate for pensions tax relief - but opinions among experts are mixed as to whether this is the right move. There has been much discussion in the last year about such a move, with the ex-Chancellor George Osborne reportedly having dropped plans to end or alter tax relief before the March Budget.Baroness Altmann said this week that pension tax relief was “long overdue reform” following her resignation as Pensions Minister.Tilney Financial Planner Gary Smith is keen on the introduction of flat rate tax relief, while Claire Trott, of Sipps firm Talbot and Muir is steadfastly against.Mr Smith said: “It is clear that the Government will have to reduce the cost of pension tax relief to the Exchequer, especially if they were to remove the ‘lifetime allowance’, but a fair method would be to introduce 30% across the board.“Not only would this make savings against those who benefit the most, but it should also assist lower earners in building up a retirement pot. Ultimately, statistics suggest this would be a net receipt for HMRC while still being highly tax-advantageous to higher taxpayers – comparable with tax-efficient investment vehicles such as Venture Capital Trusts and the Enterprise Investment Scheme."It would also potentially address one of the huge ticking time bombs facing the country; an ageing population grossly underfunded for its eventual retirement.”Baroness Altmann proposed a ‘one-nation’ pension – and said the “present ineffective and complex incentive structure” for pension saving costs over £40billion a year.She said: “It favours the highest earners disproportionately, while leaving lower earners seriously disadvantaged. We need a radical overhaul of incentives, which can offer more generous help than basic rate tax relief, but as a straightforward Government pension contribution for all, and would end the discrimination against Britain’s lowest earners who are forced to pay at least 20 per cent more for their pension than higher paid workers.”However, such reforms are not popular with all.Regarding Baroness Altmann’s comments, Claire Trott, head of pensions technical at Talbot and Muir, said: “I wholeheartedly disagree with this, the complexities of flat rate tax relief has been raised on multiple occasions from the need to abolish salary sacrifice to the need to tax employer contributions of high earners in order to make it truly flat rate.“That isn’t even looking at defined benefit schemes, where the most tax relief goes. The change would create another 2 tiers of pensions, when we are still dealing the 2006, 2011 and 2015 major changes. What this doesn’t even consider, in order to get tax relief you have to pay tax in the first place, those earning more, pay more tax it isn’t just a give away.”Elaine Turtle, director of DP Pensions, said: “In terms of reform to pensions tax relief, I am not in favour of this and wholeheartedly believe that if we create a single tax rate, it will become even more complex for savers. It is also likely to drive the more wealthy away from the pensions regime and for those less well off into the ISA regime, where they can access money – creating even more of a long-term issue.”

Sipps expert against call for flat rate pensions tax relief

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