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Calls for the simplification of contractor pensions

Calls for the simplification of contractor pensions

Hargreaves Lansdown, the FTSE 250 investment company, partially backs the coalition’s proposals to change tax relief on pensions but suggests that further adjustments could make the system simpler.

Reducing the annual allowance to about £40,000 and reinstating marginal rate tax relief were definitely a lot better than Labour’s idea of restricting tax relief to high earners.

However, by restricting 50% tax payers to pension tax relief of just 40%, the coalition risks undermining the positive impact of the reform. Hargreaves Lansdown suggests that it would be a better idea to have a lower annual allowance but with full marginal rate tax relief. On average, individuals only contribute about £2,020 a year to their personal pension so an annual allowance of £35,000 for example is still more than enough for the majority of investors.

The Association of British Insurers says that the allowance should not fall below £35,000. Earlier this year the Treasury launched a consultation on tax relief for pension contributions. The ABI argued that the allowance should be £45,000, i.e. the top of the Treasury’s suggested range.

The ACCA is concerned that the changes will do more harm than good. The Assocaition would like to see a low allowance for people who are just starting their first job and a larger allowance for people aged over 50.

The secret to success here must be simplicity or else the government runs the risk of investor confusion. It has already been revealed recently that the majority of people nearing retirement age are not financially prepared for the consequences of retirement and any changes to the current pensions regime must be simple for the investor to understand and the taxman to implement.

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Image: the c(o)urse of life by ‘PixelPlacebo’

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