Companies are worried that changes to tax relief will discourage pension saving

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Employers are concerned that possible changes to tax relief will reduce employee interest in their pension savings, according to a survey from Aviva.

A government consultation, closing today (30th September), has questioned how pension contributions should be taxed, and what incentives should be offered to savers – including the possibility of introducing an ISA system.

In such a system, both employee and employer contributions would be subject to tax – a measure which will likely influence the reactions of both towards pension savings.

Aviva’s research found that two thirds of companies believe such an ISA system would discourage employees from saving into their pension, while 52% said that if National Insurance Contribution (NICS) relief was abolished they would either have to decrease their pension contributions or reduce their spend on other benefits.

The majority (82%) of employers said it is very important that their pension contributions continue to receive NICS relief. Many suggested an alternative to the ISA through the introduction of a flat rate of tax relief for all workers, regardless of salary.

In terms of positively encouraging pension saving, 80% of employers also agreed that a rate which saw the government contribute £1 for every £2 an employee saved would encourage people to either save more – or at least the same as they are now.

Andy Briggs, CEO UK & Ireland Life at Aviva, said: “Less than 10% of businesses we surveyed thought a Taxed-Exempt-Exempt, or ISA system, would lead to people saving more into a pension while 67% thought it would cause a reduction in saving.

“The clear message from employers is that an ISA-system is likely to reduce pension saving levels, including their own contributions. Employers make around two thirds of all contributions to pensions so how they are incentivised to contribute is very important.

“The title of the consultation is ‘strengthening the incentive to save’ but it appears that employers don’t believe that a move to an ISA-system would achieve that.”

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