Simplification is the key - Centre for Policy Studies

not having used the platform for a while, or having reached a savings target, or a timely
suggestion to save a pay rise 142 directly into one of the funds available via the platform.
8.6 The wealthy
The introduction of the £45,000 contributions limit would not wholly satisfy the wealthy,
but it would provide access to some 50% relief whereas, following the April 2009 Budget,
there will be none from 2011.
The wealthy could be expected to welcome the proposal to end the Standard Lifetime
Allowance (SLA) because, today, pension funds that exceed the SLA are heavily taxed:
55% if the excess benefits are taken as a lump sum and 25% if taken as income. Income
is then subject to income tax at the saver’s marginal rate. Penalising successful savers in
this way is unjust; asset realisation should simply be taxed at the savers’ marginal rate.
A further consideration for high earners is the forthcoming Finance Act, the consultation
for which was issued in December 2009. This is likely to introduce an annual tax charge
of 30% on any excess DB scheme accrual over the annual allowance (currently
£245,000). Furthermore, the current multiplier 143 of ten is likely to become age-related
and could be as high as 25. Consequently many high earners are likely to leave their DB
schemes (before April 2011) for unapproved schemes, or forego employer pension
contributions for cash in lieu. Introducing a contribution limit as proposed, as an
alternative to the 30% accrual-based tax charge as described would, from a high
earners’ perspective, be preferable.
8.7 Easing embedded equity into retirement income
Proposal 9, for a £200,000 Primary Residence Limit, is in acknowledgement of the
strength of the emotional link between home ownership and long-term saving. “My home
is my pension”, “it’s the children’s inheritance” and, increasingly, “my home will pay for my
long-term care, if needed” are maxims that are deeply rooted in the British psyche
(notwithstanding their incompatibility). Introducing the Primary Residence Limit provides
a mechanism for these sentiments to be made real; it enables substantial embedded
equity to become retirement income without consuming capital gains and inheritance
tax allowances.
A further step would be to permit the primary residence to be sold into a pension
savings product so that it could act as an equity release vehicle. 144 This would, however,
142 What the employee has never had he is less likely to miss.
143 Increases in pension accrual, arising with additional years served and pay rises, are multiplied up before
being measured against the annual allowance.
144 Individual residential properties cannot currently be held within a SIPP (but property funds can be).
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