OTS urges Treasury to conduct radical pension tax review

The Office of Tax Simplification (OTS) has urged the Treasury to review a series of complex pension tax measures, in a latest report, with the impact of the money purchase annual allowance (MPAA), annual allowance and lifetime allowance all under the microscope.

The OTS is also urging the government to address net pay anomaly and allow parent to claim back NI credits. The report also strengthens the case for a fundamental review of retirement savings incentives.

AJ Bell senior analyst Tom Selby said: ““This latest report lays bare the nightmarish complexity facing savers attempting to navigate the UK pension tax system. It is frankly bizarre that savers now have to get their heads round an annual allowance, money purchase annual allowance, tapered annual allowance and lifetime allowance, all of which could apply to people at different stages of their life.

“Some of these measures have serious consequences. The taper, for example, is placing huge strain on the NHS as senior doctors are forced to refuse extra shifts to avoid eye-watering tax bills. The MPAA, which is poorly understood, severely punishes those using the pension freedoms, reducing their annual allowance from £40,000 to just £4,000.

“We know this complexity puts people off pensions and the government now needs to put simplification at the heart of its savings agenda. Rather than looking at these issues in isolation, policymakers should convene a commission tasked with simplifying the system and encouraging more people to save for retirement. Low paid savers are also subject to an unfair pensions lottery which can mean they miss out on tax relief if they are automatically enrolled into a ‘net pay’ scheme. This is simply not right and the government must urgently address this issue, which cruelly hurts the savings aspirations of the lowest paid workers.”

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