UK - Industry groups are uniting in a bid to quash an Inland Revenue move to tax retirement lump sums over £50,000.
The proposal, revealed last month, is set out in a draft version of the Inland Revenue’s much-anticipated review on tax reform. It understood that between five and seven draft versions of the review are in the hands of government ministers.
The National Association of Pension Funds, the Society of Pension Consultants and the Pensions Management Institute condemned the plan which, they say, would discourage pension saving.
In a letter sent to both the Treasury and pensions minister Andrew Smith, NAPF chairman Peter Thompson expressed “grave concern” at the proposal.
The letter said: ”Without the tax-free cash, the tax treatment of individual pension savings would be effectively the same as that of ISAs.
“Given that ISAs are much more flexible, there would be no reason for any individual to save via a pensions vehicle. Stakeholder pensions, in particular, would become pointless unless the saver had already used up their full ISA allowance.”
The SPC said ahead of its letter: “This would be precisely the wrong signal to send to members and people thinking about taking out long-term savings.”
Taxing the lump sums of private sector employees currently in occupational scheme would generate £14bn for the Treasury.
In a separate move, Confederation of British Industry chief Digby Jones urged Chancellor Gordon Brown to quash these “rumours”.
Jones said: “This would be a deeply unpopular proposal that would totally undermine the plans the people have made for retirement.
“The government is right that we need action on pensions. But it should be offering incentives to people to take out private provision, not undermining the current system.
“It has already caused enough problems with removal of the dividend tax. Removing the tax free lump sum would only make the matter worse.”
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