Wide-ranging report backs flat-rate of pension tax relief set at 28%, capping tax-free cash at £40,000 and levying National Insurance on pension incomes (https://www.resolutionfoundation.org/app/uploads/2018/05/A-New-Generational-Contract-Full-PDF.pdf)
Think-tank also calls for state pension ‘triple-lock’ to be replaced by ‘double-lock’ and auto-enrolment earnings trigger to be cut to £6,000
Study attempts to address long-term care funding crisis and backs new ‘Citizen’s Inheritance’ of £10,000 from age 25
Tom Selby, senior analyst at AJ Bell, comments:
“The Resolution Foundation has thrown the kitchen sink at some of the biggest challenges facing society today. Some of the ideas, such as paying £10,000 to everyone over the age of 25, feel like gimmicks that will never see the light of day. Others would face severe practical challenges if they were to be implemented.
“There would be significant complexities to overcome in establishing a flat-rate of pension tax relief, particularly in relation to defined benefit pensions. Furthermore, any move to cap tax–free cash would need to be fair to those who have already contributed to a pension based on the rules of the existing system. It is also critical any attempts to address intergenerational fairness through the pension system do not inadvertently damage incentives to save in the UK.
“Although this report adds welcome stimulus to the intergenerational fairness debate, many of the ideas aren’t new and face the same barrier as other reforms – namely the reality of politics. Ultimately it is hard to imagine any would-be Prime Minister campaigning for election on a platform of raising taxes for those over state pension age or hacking back tax-free cash, one of the biggest attractions of saving in a pension.
“We also need to remember that constant uprooting of the system does little good for confidence and trust in pensions. Savers crave stability, so any radical package of reforms should come with a commitment not to move the goal posts once again a few years down the line.”