Advisers have called on the government to be attentive when considering any changes to pension tax relief after provider Hargreaves Lansdown suggested it should be abolished in favour of government top-ups.
Several advisers warned that if the government were to make any changes to the way pension tax relief works, the plans would need to be well thought out, avoid unnecessary complications and the process would take time.
This comes after Hargreaves Lansdown published a paper in which it urged the government to announce in the upcoming March budget a review of the UK’s pension tax rules.
Under current rules, tax relief is paid on savers’ pension contributions at the highest rate of income tax they pay.
But Hargreaves Lansdown has suggested this method should be scrapped and replaced by a pension top-up system, either through the government or the employer.
But advisers have warned that any radical reform will take time and could add further unexpected complications to the system.
Alan Chan, chartered financial planner and director at IFS Wealth & Pensions, said that while Hargreaves Lansdown’s suggestion could work, it was too radical to be introduced in a short timescale.
Mr Chan said: “While some suggestions are good, taken together they appear to be very radical changes that will completely transform the pensions landscape – something that cannot be done overnight and needs to be carefully weighed up.
“I just fear that pensions may be made even more complicated by this.”
Mike Lacey, partner at financial adviser firm Bowman Pension Consulting, said: “Any call to review the current pensions regime is of course welcome, but I do feel the government needs more than five weeks to give proper consideration to the matters raised by Hargreaves Lansdown.”
He added that Hargreaves Lansdown’s suggestions for reform would put more onus on employers and could remove the need for a workplace pension.
Mr Lacey said: “I welcome the call for reform, but there should be a decent consultation period with input invited from a wide variety of contributors.”
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