Sixty one per cent of pensions providers questioned in a recent survey, commissioned by Dunstan Thomas, think that the uncertainty around the future taxation regime for pensions savings will have a much more significant impact on the pensions market in the next three years than any other macro development in the industry.
Only 31% of providers saw Retail Distribution Review (RDR) as the largest concern over the next three years, while NEST was the primary concern for just 4%, which infers that the industry is not expecting NEST to be effective.
The findings suggest that the Government’s recent attacks on high earners – introducing the 50% rate of income tax for those earning £150,000 or more, this month, and the graduated withdrawal of pensions tax relief from April 2011, have rattled the industry. The effect of the two events together will be dramatic for those approaching retirement and taking salary sacrifice to top up their pensions.
Under Labour, from next year anyone earning over £150,000 will see pensions tax relief on any pensions contributions scaled back by 1% for every £1,000 of extra income. So those earning £180,000 or more will only get 20% tax relief instead of the 50% (additional rate) they get today. Many in the market predict that tax relief thresholds will be dropped further if Labour is returned to power. But if the Liberal Democrats, the power brokers in a potential hung parliament, get their way pensions policyholders will only receive tax relief on pensions contributions at the basic rate – an even more depressing scenario for those saving for retirement through personal pensions.
Chris Read, chairman, Dunstan Thomas Holdings, explains:
“The current mood of raiding high net worth individuals through the withdrawal of pensions tax relief and the increase of the top tax rate is of major concern at a time when the country desperately needs to see an increase in incentives for individuals to make higher provision for their retirements. Many of the people earning at this level are employers and senior managers. If they are being dis-incentivised to save for retirement what does that mean for the pensions provision they are likely to offer their employees?
“You only need to look at the statistics to realise the scale of the problem. Only 800,000 of private sector workers are still in active final salary schemes today, within 10 years there will be none left. 80% of young people, aged 18-24 years old, are not saving anything for retirement right now and only half of 25-34 year olds are putting money aside for retirement, according to Department of Work and Pensions’ latest figures.
“Of the workforce as a whole only 62% are saving for retirement and this figure falls year on year. All the while the demographic time bomb ticks so these people that desperately need to save for retirement, to reduce the burden on the state at retirement, are not doing so. And providers themselves, as our survey reveals, are struggling with red tape and facing uncertainty as pensions looks set for another Government-inspired hammer blow.”
Full results of this Dunstan Thomas-commissioned survey of product providers will be revealed on 29th April 2010. For a copy of the key findings please contact Chris Read, chairman, Dunstan Thomas at firstname.lastname@example.org.