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Flat rate pension tax relief represents a radical proposal 

23/06/2020

If you are covering the Pension Policy Institute and ABI report, which today calls for an overhaul of pension tax relief, please see the following commentary from Quilter head of retirement policy, Jon Greer:

“Moving to a flat rate of pension tax relief is a radical proposal and one that must be carefully considered. Pensions are for the long-term and so any policy making needs to be made with that in mind. We cannot have an overhaul of the pension tax system only to find it flawed and altered when challenges present themselves. Consultation on how it could be implemented, and to which schemes, is important as on the surface it sounds like an easy thing to do, but in practice it is not necessarily the case.

“While a flat rate of 30-33% would be re-distributive and benefit basic rate taxpayers, it would be broadly revenue neutral for the government.  And this begs the question, what will they do next? Once pension tax relief is decoupled from marginal income tax rates it is a slippery slope and there would be little to prevent future governments then cutting tax relief to 25% or even 20% to save money.

“It is also important to remember that income tax relief on pension contributions is not truly a relief in the conventional sense, but a tax deferral mechanism. Pensions are liable for income tax, but this is applied on the way out, not on the way in. This tax deferral system creates an incentive to save for the future and ensures people are contributing some income tax later in life, helping to smooth fluctuations of demography and the pressures of an ageing society.

“While a universal flat rate might be simpler to understand for some of the public, it is unlikely to make a dramatic difference on public comprehension of the benefit of pension saving. We need more than tweaks to policy to change the perception of pensions and their perceived complexity and open up pensions so that information is accessible, timely and is framed in a way that is easily understood. Financial education is a key part of that and can be greatly helped by pensions dashboards.”

For more information contact

Michael Glenister020 7778 963807469 144535michael.glenister@quilterinvestors.com

Notes to Editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £95.3 billion in customer investments (as at 31 March 2020).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.

The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.

Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

Wealth Platforms includes Old Mutual Wealth UK platform and Quilter International, including AAM Advisory in Singapore.

The Old Mutual Wealth Heritage life assurance business was acquired by ReAssure Group Plc on 2 January 2020.

Since its IPO in June 2018, Quilter plc’s businesses have progressively rebranded to Quilter, as follows: 

  • Quilter Financial Planning (previously Intrinsic)
  • Quilter Private Client Advisers (previously Old Mutual Wealth Private Client Advisers)
  • Quilter Financial Advisers (previously Charles Derby Group)
  • Quilter Financial Adviser School
  • Quilter Cheviot
  • Quilter Investors
  • Old Mutual Wealth (becoming Quilter Investment Platform)
  • Quilter International (previously Old Mutual International)

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.