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Pensions not an ATM, Osborne told
Pensioners have been facing high living costs recently
Chancellor George Osborne has been urged to resist the temptation to treat pensions "like an ATM", amid speculation that a tax raid on them is being planned for the Budget.
Last month, Treasury Chief Secretary Danny Alexander said wealthier savers should be stripped of higher-rate tax relief on pensions and insisted the better-off were benefiting disproportionately from the tax break. Reducing tax relief from 40% to 20% would save more than £7 billion and make the system fairer, according to Mr Alexander.
For every 60p currently saved in a pension by a higher-rate taxpayer, the Government contributes 40p in tax relief to make it up to £1, but suggestions have been made that this should be cut to around 20p.
But analysts said the Government should leave pensions alone and called for a period of stability at a time when ministers are trying to encourage a savings culture. The calls have come ahead of a huge overhaul of the pensions system this autumn when up to 10 million people will start being automatically placed into schemes to tackle the savings crisis.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "The Government should leave pensions alone. This year marks the start of auto-enrolment. If it fails then there is no hope left for the UK's retirement provision. The Government should resist the temptation to treat pensions like an ATM - what we need is a period of stability."
Association of British Insurers (ABI) director-general Otto Thoresen said: "In opposition, George Osborne repeatedly stressed he would be a pro-savings Chancellor. At this very difficult time for savers, he needs to live up to his promises and resist the temptation to view pensions as an easy, short-term hit."
Pensioners have been faced with high living costs at a time when they are receiving little return on their savings and new retirees are finding annuity rates, which set the size of a pension for life, have been hit by quantitative easing.
CBI director-general John Cridland said: "Further reducing this tax incentive would also have lasting damage on long-term saving, at a time when the Government is aiming to promote a savings culture through auto-enrolment."
Auto-enrolment forms part of a package of measures which include overhauling the state pension system, and the Work and Pensions Select Committee recently said the Government should proceed "without delay" and introduce a Bill at the beginning of the 2012/13 parliamentary session.
The committee has called for the Government to act swiftly to establish a simpler, flat-rate state pension, so that people can increase their workplace saving without raising concerns that they will be penalised by losing state benefits in retirement.
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A new study suggests a typical financial emergency costs around £1,200 - would you be able to raise that kind of money within a month?
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- Yes - from my savings
- Yes - I could put it on credit
- Yes - I could borrow from family or friends
- No - raising that kind of money in a month would be impossible