The Trades Union Congress (TUC) has warned the Government not to increase the amount of money it spends providing tax incentives for companies and individuals to organise sufficient pension cover.
In its new report, entitled ‘Expensive, ineffective and unequal’, the organisation claims that introducing further incentives will not only fail to end the pensions crisis but will also increase inequalities by providing extra help for the well off. Instead, the TUC is advocating the introduction of compulsion in the pensions system and a better state pension.
The report argues incentives won’t work. Even in occupational pension schemes, where employee contributions usually trigger a much bigger employer contribution, 13% of full-timers and 16% of part-timer workers do not join.
The TUC also claims the pensions incentives simply switch cash from other savings vehicles. The report quotes the government’s Sandler review which said: “There is little evidence to suggest that tax incentives have a significant impact on overall savings levels, especially among lower-income groups.”
Another argument the organisation puts forward is that the pensions incentives already massively benefit the better off. The report states the total cost of tax incentives per year is estimated at £27bn, equivalent to about 10p of income tax, and about half of this goes to upper rate taxpayers.
Brendan Barber, general secretary of the TUC, says: “New pensions incentives will be expensive, won’t work and will increase inequality. We already have huge incentives to save for retirement, but they are not working. Instead of further new incentives the government should phase in compulsory savings for employers and employees and a better state pension would give everyone a firm foundation on which to build a pension.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected].IFAonline
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Alongside Barrett, Hopkins, Boston and Thorman on 17 October