Home Business News Calls to axe pensions tax-free cash strengthen case for retirement policy stability

Calls to axe pensions tax-free cash strengthen case for retirement policy stability

by LLB Editor
9th Oct 19 8:04 am

The Institute of Economic Affairs (IEA) has called on the Government to scrap pensions tax-free cash to help pay for inheritance tax abolition.

The proposal would risk creating a damaging cliff edge unless protections were introduced for those who have built up savings.

Rumour and speculation about the future of tax rules, and tax-free cash in particular, affect investor behaviour and damage long-term confidence in pensions.

Tom Selby, senior analyst at AJ Bell said, “Axing pensions tax-free cash just as automatic enrolment is fostering a fragile savings culture in the UK is a terrible idea.

“Being able to access a quarter of your pension pot tax-free from age 55 is one of the best understood benefits of saving in a pension, so ditching it altogether would have potentially disastrous long-term consequences.

“Rising average life expectancy, the increasing state pension age and the disappearance of guaranteed defined benefit provision is placing ever greater onus on individuals to provide for their own retirements. Given this context, public policy needs to be focused squarely on ensuring the environment encourages more pension saving, rather than pulling the rug from under people.

“There would also be severe practical issues if the Government attempted to end tax-free cash for all.

“Those who had saved money on the assumption they would get 25% of their final fund tax-free would justifiably feel aggrieved at an essentially retrospective tax grab. Even introducing a cap on tax-free cash would create a severe cliff-edge, so it is likely complex transitional measures would be needed.”

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