Any major change to the tax relief regime would destroy the pensions system, just at the point when it was nearing perfection, according to pensions guru Steve Bee.
Speaking at the Income+ forum in London Steve Bee (pictured), chief executive of Jargonfree Benefits, said a shift away from the current ‘exempt-exempt-taxed’ (EET) method of awarding tax relief on pensions - where only income withdrawals are taxed, to an ISA-style system - where contributions are taxed (TEE), would destroy pensions.
In his Summer Budget chancellor George Osborne announced the launch of a consultation on the pension tax relief regime and suggested that pensions could be taxed in a similar way to ISAs where savers pay tax on contributions but not on withdrawals or growth.
At the time he said: 'I am open to further radical change; pensions could be treated like ISAs. You pay in from taxed income but it is tax free when it is taken out and when it is in there it receives a top-up from the government.'
The government will outline its plans for the relief regime in the Budget 2016. The majority of pension providers have warned against a move away from the current regime.
Bee said: ‘I am worried about what is going in our pension system. We finally have a system that makes sense and I’m terrified it might be torn up. TEE would be the end of pensions in the UK.’
Bee warned that future governments could not be trusted not tax pension withdrawals too.
‘The biggest threat to the pension system now is all this talk about changing the way pension tax relief works. We must not fall for that, its pure nonsense.
‘You only pay tax once from your pension savings: income tax. That’s when you draw it as income. The pensions system now has protected savers who save over decades. People who save over that long term need to be protected and need guarantee they will only be taxed once on those savings.’
He said the pension freedoms in conjunction with the flat-rate state pension had finally achieved a vision of pensions first set out by William Beveridge in 1962.
Bee said: ‘The pension freedoms have strengthened pensions. I’ve been saying for a long time: [it could happen] once we had a basic subsistence level state pension which Beveridge tried giving us along long time ago, and we have finally got it.’