Pensions overhaul won't damage savings culture

There have been rumblings of discontent in the insurance market about how any changes to pension taxation will throw the UK's saving culture off course, but the real problem is that there isn't a savings culture.

The government's consultation on whether to scrap higher rate tax relief on pension contributions or go further and make pensions look more like ISAs, have left the pensions industry grumbling.

It is arguing that scaling back of tax relief to, possibly, a fixed rate, will disincentivise people from saving. But what it means is rich people won't have it so good because their tax relief will be cut, while those paying basic rate tax will likely see theirs increase.

Overhauling tax of pension could really benefit 'normal' people, but they're not as big a financial win for large companies.

The insurance industry is warning that the upheaval will destroy the savings culture in the UK, but in reality the changes proposed will make pensions easier to understand and fairer for the man on the street.

Rather than killing savings, this is likely to encourage it among 'everyday' people. This is a way to cultivate a savings culture among those who have been turned off pensions because of the complex nature of them (I've never understood why the free money given to you by the government for saving is called tax relief when people equate tax with money being taken from them).

Scaremongering tactics

It's scaremongering to suggest that the savings culture will be damaged because, away from the wealthy who can afford financial advice and accountants, there isn't much of a saving culture to damage.

What the financial services industry means is that richer people will save less into pensions and may save the rest of their money elsewhere if tax relief is cut, and this isn't good for those companies.

The fact is the tax relief on pension contributions provided to people in this country is hugely towards the wealthy paying 40% income tax, who have to save just 60p to receive £1 in their pension while a person on basic rate tax has to contribute 80p to receive £1.

It's not fair.

Equalling out the amount of tax relief to a flat rate will be much fairer and it is only by the system being fair that people will be encourage to save: only then will we encourage a savings culture to blossom.

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