Michael Johnson, an expert on UK pensions, has submitted nine proposals for the Budget aiming to reduce the burden on the Treasury, lower pensioners' poverty and encourage a savings culture, according to a report published by the Centre for Policy Studies.
The first proposal suggests that the annual contribution limits for tax relief on individual savings accounts (ISAs) and pensions saving should be combined at no more than £40,000, while the second highlights the removal of higher-rate tax relief, the annual £7bn saving being partly used to reinstate the 10p tax rebate on pension assets’ dividends and interest income.
The third calls for the Chancellor to consider replacing basic-rate income tax relief with a higher flat rate, perhaps 25 per cent, or even 30 per cent, once the economy has recovered to motivate low earners to save.
The fourth and fifth proposals suggest that 25 per cent tax-free concession on lump sum withdrawals at retirement should be replaced with a 5 per cent top-up of the pension pot, paid prior to annuitisation. The individual should meet the minimum income requirement of £20,000 a year to be eligible to make any lump sum withdrawal at retirement.
The sixth proposal calls for salary sacrifice schemes to be banned; the seventh for enabling people to provide unused pension savings assets to third parties free of inheritance tax.
In his eighth and ninth proposals, Johnson suggests that employers should be incentivised to encourage basic-rate taxpaying employees to improve their pension contributions, and the introduction of safe harbour guidelines (not regulation) to exempt trustees, employers and governance committees from class actions.