Friends Life has welcomed the debate around pension tax relief, sparked by recent comments made by Pensions Minister Steve Webb. The life and pensions company has been working on similar proposals for some time and is now calling for cross party commitment to the reform of incentives for pension saving. The reform would make it fairer for consumers and help reduce the retirement gap.

Under our proposal:

  • There would be a flat rate of pension tax relief for all set at 33% - effectively giving consumers 'buy two, get one free' on their pension contributions
  • Minimum automatic enrolment contributions for employees would be increased to reach 6% in 2019, locking the enhanced contribution from government into pension savings, at no additional cost to employees
  • Employer contributions should continue to be free from National Insurance and income tax, to retain incentives for employers to support pension saving by their employees
  • The annual allowance1should be the lever to control future expenditure on pension tax relief
  • Measures should be introduced to prevent higher and additional rate taxpayers benefiting unfairly from salary sacrifice

Friends Life believes that making these changes would introduce fairness to the system of incentives for pension saving and increase the amount being invested for retirement for the majority. They would also retain the incentive for employers to support pension saving

Andy Briggs, Group Chief Executive at Friends Life, said:

"An aging population is one of the biggest challenges this country is facing. As our recently-launched Retirement Savings map showed, people are facing significant shortfalls in their retirement income but we can go some way to reducing this retirement gap if we introduce further structural reforms. Currently, higher and additional rate tax payers make half of the pension contributions but benefit from 75% of the tax relief2. That has to change, to increase the pension savings of those that need it most."

"The principle behind the current system of pension tax relief is that tax is paid in retirement at the same rate as the tax relief given on contributions. But that is a myth, as only a small proportion of people continue to pay higher rate tax once they retire3. Our proposal recognises that tax relief is simply the government's contribution to people's pension savings and says it should be given on equal terms to all.

"A flat rate of 33% would be effective and easily understood by consumers as they would 'buy two get one free' on their pension contributions. A flat rate lower than this would be a backwards step, as many basic rate taxpayers already get 32% relief today by contributing via salary sacrifice.

"Our proposal introduces greater fairness, and maintains incentives for employers to contribute, which is essential in helping people save for a better retirement. Our proposal can deliver Treasury savings to help reduce the public deficit while introducing the fairness we call for and while encouraging increased levels of pension saving.."

"Implementing such a significant change will take time and should only be done with long-term cross-party commitment and after the successful implementation of the existing Automatic Enrolment reforms.

"These aren't changes that can be rushed, but reform of pension tax relief will bring real benefit and has to happen," said Andy Briggs.

1Annual allowance: The annual allowance sets the limit on tax relievable pension contributions which may be paid by or on behalf of an individual each year. It is currently set at £40,000.

2Source: CPS - Retirement Savings Incentives; The end of tax relief and a new beginning, April 2014

3CPS estimate that only 1 in 7 people who receive higher rate tax relief on their pension contributions whilst contributing to a pension pay tax at that rate in retirement. Source: CPS - Retirement Savings Incentives; The end of tax relief and a new beginning, April 2014

-END-

For more information please contact:

Ben Moss, PR Consultant
ben.moss@friendslife.co.uk
Tel: 0117 928 5843
M: 07827 832395

Ref: N0221

Notes to Editors

Friends Life provides pensions, investments and insurance for over five million customers. Our key business lines are corporate benefits, protection and retirement income.

Friends Life is the brand name of Friends Life Group Limited.

Our heritage dates back to 1810, with Friends Provident being founded in 1832 to help alleviate the hardship of Quaker families facing misfortune.

Other brands in the Friends Life group include:

  • Friends Provident International, which provides life assurance, pensions and investment products to Asia, Middle East, Europe, UK and other selected markets.
  • fpb AG, a wholly owned distribution partner in Germany.
  • Sesame Bankhall Group, which was formed in 2009, combining an IFA network, support service provider and mortgage club, to create a large distributor of professional support services to financial advisers.

Important

This news service is for information purposes only and does not provide any form of advice, recommendation or financial promotion. Any opinions expressed by third parties are those of the third party concerned and not of Friends Life Group Limited. Friends Life Group Limited does not accept liability for any errors or omissions or for loss incurred because of reliance on information or opinions given.

The content of the news items set out above are accurate only as of the date of issue and Friends Life Group Limited does not undertake any obligation to update them.

Useful links:

www.friendslifegroup.com/media-centre.aspx
www.flickr.com/photos/friendsimages
www.twitter.com/FriendsLifeTalk.

To follow Friends Life twitter page on your mobile, simply text "follow FriendsLifeTalk" to 86444 (UK only)

Friends Life is a business name of certain companies in the Friends Life group including the following

Friends Life and Pensions Limited Company number 475201
Friends Life Limited Company number 4096141
Friends Life FPLMA Limited Company number 00004599

Each of the above companies is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority

Friends Life Marketing Limited Company number 5059179
Friends Life Investment Solutions Limited Company number 6389025
Friends Life Services Limited Company number 3424940

Each of the above companies is authorised and regulated by the Financial Conduct Authority.

Friends Life Management Services Limited Company number 983330 is an appointed representative of Friends Life Services Limited, Friends Life and Pensions Limited and Friends Life Limited.

Friends Life The Blue Line Limited Company number 3146254 is an appointed representative of Friends Life Marketing Limited.

Suntrust Limited Company number 1460956 is not authorised or regulated by either the Prudential Regulation Authority or the Financial Conduct Authority.

Each company is an incorporated company limited by shares and registered in England and Wales with a registered office at Pixham End, Dorking, Surrey RH4 1QA

Telephone calls may be recorded. Friends Life is a registered trade mark of the Friends Life groupwww.friendslifegroup.com

distributed by