The dust is settling on George Osborne's pension proposals, and now that we have passed the tax year end and the Easter holidays I am sure we will see reams of research and, hopefully, product innovation.

So, that's the decumulation bit done then. Now to the important part – how do we get people to put money in?

The latest restrictions came into force on 6 April 2014 when the Lifetime Allowance reduced from £1.5 million to £1.25million and the Annual Allowance fell from £50,000 p.a. to £40,000 p.a. But we all know that this will not be the end.

Last week the Pensions Minister, Steve Webb, entered the fray, suggesting that we do not need a Lifetime Allowance, and that he favoured a flat rate of pension tax relief of 30% across the board.

This week a further contribution to the argument came when the Centre for Policy Studies produced a report called 'Retirement Savings Incentives', written by Michael Johnson. Some of the recommendations he makes are quite radical.



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In brief, the key recommendations from the report are:
1. Treating pension contributions from employers as though they are part of an employees' gross income, and taxing them accordingly.
2. Introducing a flat rate Treasury contribution of 50p per £1 saved in a pension, up to an annual limit. This would replace current tax relief on pension contributions, and should be paid irrespective of the saver's taxpaying status.
3. Replacing current ISA and pensions allowances with a combined limit of £30,000 p.a. that can be split flexibly across both pension and ISA.
4. Scrapping the 25% tax-free lump sum, but protecting any accrued rights.
5. Reducing complexity by scrapping the Lifetime Allowance.
6. Reinstating the 10p tax rebate on pension assets' dividend income.
7. Allowing unused pension pot assets (perhaps up to a limit of £100,000), to be bequeathed to third parties free of Inheritance Tax, as long as the assets remain within a pensions framework.
8. Setting the Annual Allowance at £8,000, with unutilised allowances from prior years permitted to be rolled up.
It is argued that these proposals should appeal to both sides of the political spectrum – the Labour Party for their redistributive effects and the Conservative Party for the chance of a significant cut to public spending. Indeed, pension tax relief is referred to as "the lowest- hanging fruit in Whitehall".

Steve Webb had a bit of criticism from the industry about how difficult it would be to administer such a flat rate (particularly for DB schemes) when you take away the connection between the tax relief given and the rates of tax paid. Indeed, some time ago it appeared that the Liberal Democrats had recognised this difficulty and had fallen back on continuing to cut the Lifetime Allowance.

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I am sure that Michael Johnson's recommendations will not be readily accepted by everyone – particularly the removal of the tax-free lump sum – but it is good to see some creative thinking.

I still have a bit of an issue with the short-term nature of the proposals, and the low-hanging fruit reference gives this away.

There are a number of arguments for and against tax incentives for retirement saving and particularly for a system that favours higher earners – we have all heard arguments that pensions are deferred pay and should only be taxed once, when taken, and that is why we have an EET system for pensions.

The world is a different place – money is tight!
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A few thoughts – what is a higher earner? As was news after the last Budget, more people now pay higher rate tax, and higher rate tax payers are not necessarily the rich they are reported to be, but more the squeezed middle who I am sure will still need savings incentives.

I think some change is inevitable, but surely we must have a plan? For example, how much do we want people to save and provide for themselves on retirement? Does means testing have a role? What sort of incentives do savers respond to? What are the big numbers – like tax take from pensioners versus long-term care bills? And, in the end, how can we keep it simple such that people understand the system?

The proposed new retirement system offers opportunities for many, but to enjoy these opportunities we must have the right framework to encourage people to save in the first place.

Mike Morrison