Will the government be persuaded to rethink pension tax relief proposals?

Tax on pensions will affect everybody, whether now or in a number of years' time.

As such, the government's recent proposals are of far-reaching interest, particularly in light of the current economic climate.

When Alistair Darling announced his changes for pension tax relief in the Budget earlier this year, his alterations were met with a significant amount of criticism.

Spearheading the protest was the National Association for Pension Funds (NAPF).

In May of this year the NAPF submitted its opinion on the Chancellor's pension tax relief alterations to the House of Lords' Sub-Committee on the 2009 Finance Bill.

The Lords, shortly after, recommended that the government review its policy change on pension tax relief; a decision that may well have been influenced by the NAPF report.

Though the Lords' acceptance of the NAPF's proposals will have brought both increased attention and added weight to the issue, it is ultimately with the government that the final decision rests.

Nigel Peaple, NAPF policy director, highlighted the 'stepping stone' nature of the issue and said: "We are pleased that the House of Lords Sub-Committee has accepted the arguments we put to them about the damaging impact the Budget proposals will have on pensions saving.

"We hope the report will persuade the government to rethink its proposals."

A section from the original NAPF report says of the chancellor's changes: "The proposals are a break with the long term framework for tax simplification introduced in 2006.

"The complexity and arbitrary nature of the proposals will add further administrative burden on UK pension arrangements."

The NAPF also drew attention to the imbalance of the amendments' effect on low and high earners.

The inclusion of employer contributions as a taxable benefit would be a disincentive for high earners to save through registered pension arrangements.

Furthermore, the fact that those said high earners could well be key company decision makers may have an effect on the lower earners through the company's remuneration strategy.

Should the higher earners become disengaged from pension saving, a destabilisation of pension saving for the lower earners could follow, the report suggested.

Also, high earners will obtain relief at 20 per cent marginal rate but will pay tax on pensionable income at 40 (or even 50) per cent in retirement. This is double taxation.

Perhaps, in light of this, the government may be persuaded to rethink its pension tax relief proposals.

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