Pension savings which fail to take people above the level of means-tested benefits at retirement is ...
Pension savings which fail to take people above the level of means-tested benefits at retirement is one of the key problems facing pension reform, argues Scottish Life in response to the Government's Green Paper on pensions and the Inland Revenue's consultation paper on pensions tax simplification.
Steve Bee, head of pensions strategy for Scottish Life, has made a once in a lifetime achievement and emphasised all Green Paper problems by summing it up in a one sentence response.
"Each pound saved in a pension should make savers at least one pound better off than those who save nothing," says the lengthy consultation response from Scottish Life.
Bee's concern is the new pension plan will leave some people better off not saving for a pension at all, if it is still the case that the total pension pot will be insufficient to lift the person over the limit for means-tested benefits on retirement.
According to Scottish Life, this will not only affect low-paid people, but also create a pension distribution problem.
"At the moment, pensions are not suitable for all in the workforce because of the way pension savings interact with the means-tested state support systems," says Bee.
Individual employees must, therefore, be advised on an individual basis - a problem that would be too costly on a large scale, Bee adds.
In its lengthier response, SL also points that the Inland Revenue's proposed new lifetime limit for pension contributions could deter young people from saving for a pension at all, believing they could reach the lifetime limit before retirement.
Many young people today might be better off starting a pension when they qualify for higher rate tax relief on their contributions, continues Bee, as the Inland Revenue plans to link the pensions pot limit to price inflation, rather than earnings, is likely to gradually reduce the pot's value in real terms.
Scottish Life is also concerned there it is not going to be enough time for companies to implement the changes and suggests that the introduction day should be 6 April 2006 as long as the proposal is published by 6 April next year.
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