The government should ensure it consults widely and takes time to consider any reform of pension taxation or risk facing the same unintended consequences of previous reforms that have disrupted pension savings, the Association of Consulting Actuaries (ACA) has stated.

In its pre-Budget submission to the Treasury, the ACA noted that while the government’s pension review was the obvious opportunity to look at tax changes as part of a holistic approach, the Chancellor, Rachel Reeves, should exercise caution.

ACA chair, Stewart Hastie, said that despite the success of occupational pension schemes in the UK, there remained significant challenges in the level of adequate savings being built up by current and future workers.

“Whilst we recognise the reality that Chancellors may want to review and potentially adjust pensions taxation from time to time, this needs to be undertaken carefully and in full knowledge of the potential consequences for savers (and pensioners), pension schemes and employers given wider policy aims such as improving retirement outcomes and encouraging economic growth,” Hastie stated.

“Changes that bring forward tax revenues will likely exacerbate the adequacy challenges for current and future workers, and for current pensioners. Confidence in the future tax treatment is essential if adequate provision is to be made.”

Therefore, the ACA told the government to identify an overall framework that can be flexible to accommodate the needs of the day and on which political parties could agree a consensus.

It noted that any revised or updated pension tax regime should cater for all savers across defined benefit, defined contribution, and collective defined contribution schemes, and aim to minimise any disincentive for long-term savings.

Furthermore, the association argued that the changes should not lead to any groups being discouraged from continuing in employment due to inflexible rules, such as the issues medical professionals have experienced.

The ACA described careful consultation and a reasonable timeline as crucial to the successful implementation of any changes.

In its submission, the ACA outlined some of the potential issues with different tax change scenarios, such as moving to a flat rate, the introduction of an asset levy, or a reduction in the lump sum allowance.

Going forward, the ACA said it would be happy to discuss pensions taxation further and provide technical input into how potential or planned changes might impact occupational pension schemes at a financial or operational level, including implementation considerations for any changes.

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