UK - The coalition government's pensions tax relief proposals risk "pulling the rug" from underneath occupational provision, a consultant warns.
Responding to a Treasury consultation on revised measures put forward in July - which included introducing an annual allowance between £30,000 and £45,000 - Mercer claimed "certain elements" of the proposals could accelerate the demise of defined benefit provision.
Head of retirement research group Deborah Cooper explained employees on incomes just above the higher rate tax threshold could inadvertently become liable for tax charges greater than the amount of pension they have accrued.
She added: "The loss of more DB schemes will precipitate a reduction in the overall savings level and increase the degree of risk individuals have to bear, resulting in more pensioners with insufficient incomes. This is not in the long-term best interests of the UK economy and will pull the rug from underneath the UK's occupational pension system.
"The proposals also incentivise the current generation of senior management to drop out of pension provision. Hit those in companies who make the decisions on pensions and you undermine enthusiasm for the whole regime, to the detriment of us all."
The consultant also warned government risked introducing a "penal tax law", attacking long-term risk sharing. Increased complexity and costs could lead to a "dumbing down" of pensions provision, it added.
Mercer's key recommendations include:
* A reduced annual allowance with an annual allowance charge equal to the individual's marginal rate of tax.
* Using age-related factors to convert DB accrual into an equivalent ‘contribution', which treats all employees fairly.
* The annual allowance charge should be levied on current accrual only and should not be applied retrospectively.
* Tax relief should continue to be granted at an individual's marginal rate.
The proposed amendments to the previous administration's plans to taper away tax relief above £150,000 followed heavy lobbying from the industry, with the Treasury citing potential "unwelcome consequences" for UK pensions.
The consultation closes on 27 August.
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