D-day for A-day. By Dan Martin

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As new rules aimed at encouraging more people to save for their retirement come into force today, research has claimed only the well-off will actually benefit.

Dubbed A-day, the changes mark the biggest shake-up to pensions rules for 50 years.

The eight tax regimes which previously governed pensions have been scrapped in favour of just one, with the complex limits on how much people can save each year also abolished.

The pensions industry claims the rules will persuade more people currently with limited savings to put more money aside for their old age but a report by Datamonitor claims the rules will actually widen the gap between rich and poor pensioners.

It said that wealthy customers are best positioned to take advantage of the liberated market that these changes create because they are mo...

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10th Apr 2006 13:14

... why HR relief at all?
At last it is just about starting to be debated as to why there is HR relief for pensions savings at all.

I am sure there must be some macro and / or micro economic reasons, but I have not yet heard them clearly espoused. (or is the reasoning purely political? ie votes). Perhaps someone can assist me here by advancing the economic case.

The whole policy point of tax relief on pensions savings, and consequent restrictions as to how they are used, is surely to encourage, incentivise and assist folk to save for their non-working lives.

Furthermore it is very hard, if not impossible, to save out of post-tax income when earning £30,000 to £40,000 (let alone less) if you have a family and mortgage.

Lastly, it seems "fair" (OK, that's political, not economic) that tax should not be paid on money being put by for retirement income which will eventually be taxed.

But do the same considerations apply to HR tax relief? Arguably might be "fair" (ie I am putting money out of my spending pot so not fair it goes in taxed at say extra 18%) but Govt policy point is not to help folk get pensions of £75k (say 5% on £1.5million)but some far more modest figure.

Would the withdrawal of HR relief substantially skew the savings / expenditure plans of folk earning over £40,000? Perhaps it is deemed it would. In which case, it is presumably argued that these folk would spend rather than save?

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By ringi
10th Apr 2006 15:06

Would a flat rate of rebate be more fair.
-> "At last it is just about starting to be debated as to why there is HR relief for pensions savings at all."

I tend to agree that having HR relief for pension saving is a bit questionable. The HR relief also means that a lot of HR tax payers have to fill in a tax from to reclaim the tax; this is additional work for HMRC and the tax player.

What about having a flag rate of rebate, that is not related to the person’s marginal tax rate. A government rebate of 50% of the payment into the pension would seem about right; it would give a BIG incentive to lower rate tax payers. It would also be nice and simple, and remove the need to have a page on the tax return for pension contributions.

I also find it unfair that a person that claimed UK tax rebate on all the payments into there pension and retire to a country that they don’t have to pay any tax on the pension income. I think ALL payouts from UK pensions should be taxed at UK tax rate wherever the person if living in the world.

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