AEGON believes announcements in last year’s Budget and pre-Budget report which broke the long-standing pensions deal, severing the link between income tax rates and pension tax relief, have introduced unnecessary complication and will impact more people than the Government realises.
AEGON suggests anecdotal evidence shows employers will find the proposals complicated to implement and are becoming disillusioned with pensions as a long-term solution to meet their employee benefit needs.
AEGON also believes constant changes to pensions rules causes uncertainty for pension savers at a time when stability is needed, at least in the medium term, to lay the foundation for auto enrolment.
Rachel Vahey, head of pensions development, says:
“Any suggestion that the tax advantages of pensions are ‘up for grabs’ undermines people’s confidence in the pension system so confirmation today that the Government has resisted the temptation for further tinkering is welcome. The Government should now pledge to maintain the status quo, at least in the medium term, to give people confidence in the stability of pensions in the run up to the introduction of automatic enrolment in 2012.
“There’s already a real fear the effect of last year’s changes will impact much wider than the people directly targeted. Using the current architecture of annual or lifetime allowances to restrict pensions tax relief would be simpler for employers to work with and for people to understand.
“The Government faces some very tough decisions to reduce public debt but we can’t allow these short-term pressures to compromise the longer term need to find solutions to tackle the longevity challenge. The UK should now take a step back and review what incentivises people to save so we can create a stable framework that encourages long-term saving.”
For further information:
Head of Pensions Development
Tel: 0131 549 2719 Margaret Robertson Tel: 0131 549 6798 Mobile: 07740 897527
Notes to editors
On 22 April 2009 the Chancellor announced in the Budget that starting in the 2011/12 tax year, tax relief on pension contributions will be restricted to basic rate for individuals with an annual income of £150,000 or higher. For incomes above £150,000, the value of pensions tax relief will be tapered down until it is 20% for incomes over £180,000.
In anticipation of this change, the Government also introduced special rules, applying from Budget Day, to prevent people from making large additional contributions to their pensions in order to benefit from higher rates of tax relief while it is still available.
In December’s pre-Budget report the Treasury added up to another 85,000 people to the numbers caught by the new rules when it announced “From April 2011 tax relief on pension contributions will be restricted for individuals with gross incomes of £150,000 and over, where gross income incorporates all pension contributions, including the value of any benefit funded by, or eventually funded by, an individual's employer.
“Tax relief will gradually be tapered away so that above £180,000 it is worth 20%, the same rate received by a basic-rate income taxpayer. To provide more certainty for individuals around whether they are affected, and to reduce administrative burdens for schemes, this will be subject to an income floor at £130,000 of pre-tax income (excluding the value of any employer pension contributions).”
The Government estimates these changes will affect 300,000 people.
· In the UK AEGON offers pensions, life insurance, asset management and financial advice to around 2 million customers. AEGON UK has assets under administration of £56 billion and employs approximately 4,900 staff.
· AEGON is one of the world’s leading insurance groups with approximately 30 thousand employees world wide and 40 million customers in the Americas, Europe and Asia. AEGON's revenue generating assets totalled EUR 361 billion at December 31, 2009.