UK companies ask government not to tinker with pension taxes

The UK government should avoid tinkering with taxation if it wishes to build trust in the pension system, business leaders have warned.

Nearly eight in 10 respondents to a joint survey by UK business lobby CBI and consultancy Mercer said changes to pension tax should not be the government’s priority.

A similar number of respondents raised concerns about regulation being drafted by the European Commission.

The findings of the 2015 pensions survey coincide with a consultation on the future of the UK’s approach to pension taxation, with the government recommending a switch from the current Exempt-Exempt-Taxed model (EET) to a Taxed-Exempt-Exempt (TEE) approach. 

Citing changes to the state pension and the rollout of auto-enrolment, Neil Carberry, CBI director of employment and skills, said employers were “craving stability”.

“Businesses want to focus on ensuring employees are making the most of what’s on offer, but there is clear concern about regulatory changes eroding incentives to save, which must be avoided at all costs,” he said.

The survey notes that, while the current system of pension tax relief may be complex, it is still the best way to encourage pension saving.

It adds: “Tax relief up-front on pension contributions not only makes it attractive to save into a pension compared with other savings vehicles, it also makes it affordable for low and middle-income earners to save effectively for retirement when they most need to.”

The CBI also called for continued resistance to parts of the revised IORP Directive.

It said funding requirements could entail “crippling” costs, hindering companies’ ability to support defined benefit schemes.

The CBI’s survey also found that 19% of businesses were ‘very concerned’ about the impact of the IORP Directive, while a further 40% were ‘concerned’.

Only 19% of respondents were unaware of the Commission’s proposed recast of the 2003 legislation.