Guy Opperman responded by saying that the government’s priority for private pension savers in 2018 remains the successful roll-out of automatic enrolment and that industry shares this priority. With 94% of eligible jobholders automatically enrolled in an occupational defined contribution scheme enrolled in a Master Trust, the Minister said that scheme managers and trustees are focused on preparing for compliance with the authorisation and supervision regime introduced by the Pension Schemes Act 2017. Opperman said, “These reforms increase the number of people saving into workplace pensions and ensure confidence in the system. Government, providers, employers and members should focus on these changes. It is therefore not the right time to implement automatic transfers.” It was pointed out in the response to Royston Smith, that all those with a defined contribution pension pot have a statutory right to transfer to another pension scheme of their choice and can use the Pension Tracing Service to identify pension pots they have accumulated with former employers. And that members could also benefit from the introduction of the pensions dashboard, which should make it easier to see all their pots in one place when they choose to do so.
The Pensions Minister finished by saying that the DWP is currently conducting a feasibility study and aim to publish their findings later in spring 2018.
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Flat rate of pensions tax relief recommeded by RSA 19 April 2018
The Royal Society of Arts (RSA), has recommended that the government should commission an independent review of tax relief in the UK, with a brief to explore if and how a flat rate ‘tax bonus’ could be established. The RSA estimate that 40 percent of total tax relief expenditure flows to the top 10 percent of earners. The report ‘ Venturing to Retire - Boosting the long-term savings and retirement security of the self-employed’ recommends that the government should appoint an independent expert in pensions and taxation to conduct a review into the future of tax relief. This would examine the extent to which a flat rate system would boost the retirement security of workers – including the self-employed – and consider how such a system could be realised in practice, while retaining broad public support. Defined Benefit (DB) pensions in particular could jar with such a model, in part because they operate on ‘net pay’ arrangements where offering tax relief at anything other than the marginal tax rate is difficult. Yet hurdles such as these are not insurmountable, the report claims. As for the financial implications, it is estimated that a 30 percent tax bonus would cost the Treasury broadly the same as the current system and if it were to require extra funding (eg if it led to considerably higher pension contributions), savings could be made by making modest changes elsewhere, such as by reducing the annual allowance threshold. The report says that this ambitious reform of tax relief would significantly boost government support for low and middle- income savers. As it stands, tax relief is provided at a person’s marginal income tax rate, meaning a basic rate tax payer gains 20 percent tax relief while a higher rate tax payer enjoys 40 percent tax relief. This system is regressive, the report says, and if we accept that income tax is progressive, then relief at marginal tax rates must be the opposite. According to new RSA modelling, only 30 percent of government spending on tax relief goes to basic rate tax payers, despite them making half of all pension contributions. The RSA estimate that 40 percent of total tax relief expenditure flows to the top 10 percent of earners. The report does state that the journey towards a flat rate tax relief would not be simple.
Other recommendations in the report include that the government should:
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