There’s more than meets the eye in the government’s consultation on tax relief, says Ruston Smith, chairman of the NAPF

While politicians have been enjoying their summer recess many of us in the pensions industry have shut ourselves in darkened rooms, with cold towels wrapped around our heads, to work through the Treasury’s consultation: ‘Strengthening the incentive to save: a consultation on pensions tax relief’.

You’ll have to go a long way to find somebody to disagree with a title like that, but a closer look at the principles the Government believes the reform should meet suggests encouraging people to save is not the whole story. There’s a bullet point on page 17 of the document which tells us any reform ‘should be sustainable. Any proposal for reform should also be in line with the government’s long-term fiscal strategy’. As Hamlet said, “Ay, there’s the rub”.


That bullet point produces a sense of déjà-vu. It seems we’re back in the pre-election period when politicians left, right and centre couldn’t wait to syphon a bit of cash from tomorrow’s pensioners to pay for today’s political priorities.

The NAPF is working its way through a number of tax models to see what benefits different models bring, and to whom. We’ll publish our response in full once we’ve submitted it to the Treasury but our initial work is making increasingly clear that a move to TEE (taxed, exempt, exempt) would be bad news for both the Exchequer and savers. Both will be significantly out of pocket.

Not just that, but the complications and costs this move would bring to running a workplace scheme make us question how long many employers will see the value in offering anything more than the statutory minimum.

While contribution levels under automatic enrolment are set to rise over time, that won’t nearly offset the loss of additional contributions if employers cut back. The net result is likely to be less being saved into workplace schemes and, if less is being saved, then the tax take under TEE will also diminish.

For savers there’s the awkward question of whether they believe any future government will stick to a TEE arrangement – in short, do they believe this Government can realistically make an offer paid from a future government’s bank account?

Let me be clear, I fully understand the Government’s fiscal priority to cut the deficit. I understand a robust economy is good for everyone and good for pension schemes especially.

But let’s also be clear on what changes made to pension taxation will bring – not just for this electoral term and the currently elected politicians (who will be long gone by the time these reforms come home to roost), but more importantly, for the millions of 20, 30, 40 and 50 year olds who are working and saving through their lifetimes for a decent retirement.

This is about more than numbers, it’s about financial security and quality of life for millions of people when they retire.

Ruston Smith is the chairman of the NAPF