Changes designed to simplify the processes of the pensions tax system must not result in a "disproportionate administrative burden" for employers and pension scheme providers, the Association of Consulting Actuaries (ACA) has warned.
In its response to the Office of Tax Simplification’s (OTS) call for evidence on its third-party data reporting review, the group expressed its support for "sensible" initiatives that would make it easier for people to save for retirement.
It warned however, that this must not place a disproportionate burden on employers and providers, stressing that the ultimate costs of this would likely be indirectly borne by pension scheme members.
Considering this, it called for any changes proposed by the OTS to be “realistic, manageable, and proportionate”, also warning that care must be taken to avoid unintended consequences due to the complex nature of the pensions tax system.
In particular, the group stated that it had “significant concerns” that any proposals for extra data reporting to HMRC would be “disproportionate”, "very onerous and inappropriate", and would not have any practical outcome in many situations.
"Changes to try to enable HMRC to take over automatic management of the infamously complicated annual allowance (AA) are unlikely to be practical or worth the information burden that would be involved especially for defined benefit savings," explained ACA Pensions Taxation Committee chair, Karen Goldschmidt.
“Any OTS proposals need to recognise that government may well overhaul the pensions tax regime soon - and any regime change from the government needs to learn from the AA challenges and be deliverable without creating huge administration burdens”.
Indeed, the ACA's response noted that there have been numerous government consultations in the past about possible changes to the pensions tax regime, emphasising that it is important not to make costly changes to the system if they may have only a very temporary lifetime.
In addition to this, the group pointed out that pension schemes involve a number of different delivery vehicles, emphasising that the practical challenges of data reporting will vary by scheme type and the nature of the administrator in place.
“The parties involved (sponsoring employers, trustees, third party administrators, bundled MP providers, etc) will also require clarity on who is responsible for what, and what the dependencies are (eg reliance on “good data” from an administrator with digital records),” it stated.
The group did not address issues around the net pay tax relief loophole, however, noting that whilst this is an issue that “needs to be addressed” it is currently being dealt with by a separate consultation.
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