UK Pension Plan Will Lead To Increase In Tax Burden

by Robert Lee, Tax-News.com, London

02 December 2005

Lord Turner's long awaited report on the United Kingdom's future pension provision will impose unsustainable demands on the Treasury and the nation's businesses, according to critics of the report's recommendations.

While the Turner report was received positively by the majority of members from both sides of the House, the Treasury has warned that the report's recommendations, which call for a restoration of the link between pensions and earnings, an increase in the retirement age for men to 67 and compulsory pension schemes, will mean that income tax will have to increase by as much as four pence in the pound for the plan to be affordable.

The pension commission recommended that workers should be enrolled automatically into an occupational pension or new National Pension Saving Scheme in an attempt to encourage people to save more for retirement, giving them the choice to opt out should they wish to do so. This could mean that all employers, including small businesses with only one or two workers, would have to contribute an extra three per cent to the savings scheme, unless their existing pensions were more generous.

However, Lord Turner disputed the Treasury's assertion that the plan would necessitate large increases in income tax, arguing that the Treasury would actually be able to afford a 3p cut in income tax if the government followed through on his recommendation to raise the retirement age for women from 60 to 65. Turner says that the real expense of the plan would only come after 2020, and even then, would only need extra funding to the equivalent of 1p in the pound.

It is also claimed that the National Pensions Savings Scheme would have a substantial effect on the UK financial services industry, with the pensions and life industry particularly badly affected.

“Lord Turner’s proposed reforms could lead to a seismic shift in the structure of the pensions market," commented John Connolly, UK Chief Executive and Senior Partner at accounting firm Deloitte.

"While it is clear that the proposed recommendations meet the important objective of increasing pension savings, the framework put forward by Turner has wide-reaching implications. The impact on the life and pensions industry and employers and the ability of a public body to administer this effectively need to be carefully considered before final decisions are made," he added.

According to Deloitte, the life and pensions industry would expect to lose up to 30% of its revenue if the Turner recommendations were implemented, putting up to 50,000 jobs at risk.

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