New OTS Report Claims System Is Complicated

Simplification of the current tax system could be a positive step but every effort needs to be made to ensure amendments are made in the fairest possible manner, a pensions lawyer at Irwin Mitchell has warned.

In a new report, the Office of Tax Simplification (OTS) has suggested that the current system is too complicated for pensioners and some reform of personal allowances or tax on savings income should potentially be considered to make the area more clear.

New proposals designed to simplify the system are now set to be developed by the OTS, with a view to publishing recommendations later in the year.

Nigel Bolton, a Partner at Irwin Mitchell who specialises in advising on pensions, said that there would be a number of issues for the body to bear in mind as it pushes forward with its plans.

He outlined: “Considering the complexity of the UK pensions system in comparison to other structures in place in many countries, any proposals to simplify it are bound to be broadly welcomed.

“However, an element of caution needs to be exercised on this issue to ensure that any potential changes do not prove to have the opposite effect. For example, some experts would argue that previous attempts to tackle this problem – such as the Finance Act 2006 – only served to create more complexity.

“There’s also some concern that this review may be used with the upcoming Budget as a way of restricting tax benefits in relation to pensions saving. There have been a number of different stories circulating from tax relief cuts for higher rate tax payers to cutting tax-free cash on retirement.

“It should also be remember that, while pensions are long-term savings vehicles which are often in use for up to 40 or 50 years, successive governments have taken it upon themselves to tinker regularly with legislation.

“The ultimate issue in this case is simply that the government must take care. While they are understandably aiming to increase pension saving among the population, they need to make changes which are carefully considered and do not run the risk of removing incentives or penalising those already using the products.”