The case for changing the pension tax system has not been made

• Providing incentives to save for the long term is crucial
• Employers have been key to success in pension savings and this should be encouraged
• Costs of tax changes could be high with no obvious benefits

In its response to the Government’s Budget consultation, the Institute and Faculty of Actuaries (IFoA) suggests that the case for changing the pension tax system has not been made.

The IFoA has outlined five specific issues the Government needs to consider in respect of any policy changes:

• The incentive provided to save for the long term must remain strong, otherwise pension scheme membership will become unattractive.  The risks to society that future generations of pensioners will have insufficient income during retirement should not be under-estimated;
• Employers have been key to the success of occupational pension provision – most recently with auto-enrolment.  Any changes to the tax framework that discourage employers’ participation in long term savings will have a negative impact on retirement income provision;
• Continual tinkering with the pensions system leads to uncertainty and instability, which could lead to the unintended consequence of discouraging retirement saving;
• The cost of tax changes could be high for sponsors, providers and scheme members.  Such costs will contribute nothing to delivering better retirement outcomes for scheme members.  Transition could be particularly costly for Defined Benefit schemes.
• The IFoA would encourage the Government to carefully analyse the impact of changes on different generations of the UK population.

Fiona Morrison, President of the IFoA, comments:

“The IFoA takes the view that the case for wholesale change of the pension tax regime has not been made.  It remains unclear that the current system is not working and how a new system would be better.  While there are current complexities, changes should be evolutionary, as the most important aspect for many savers is stability of the system in the long term.

 “It is crucial that any new system is simple and develops an enthusiasm to save for older age, while avoiding unintended consequences that detract from saving by both individuals and employers. 

“As well as a system that encourages individuals to save, it is crucially important that individuals have a good understanding of how much money they might need in later life as evidence suggests people underestimate how long they will live.”

~ENDS~

Contact

Annette Heninger, Media Relations Manager
Tel: 07525 592 198
Email: annette.heninger@actuaries.org.uk

Editorial notes

View the IFoA’s consultation responses

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

The IFoA is available to provide independent expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.