What is really needed is a once-and-for-all overhaul of the whole pensions system, including those who are already saving. The huge sums currently spent on tax relief could be much better spent on a simpler system, such as a flat rate of relief for all. For example, a 33 per cent rate of relief could be presented as a £1 government contribution for each £2 you put in to a pension.
With a sensible and fair rate of relief, and a sensible annual allowance, it would be possible to get rid of the complexity of lifetime allowances (and tapered annual allowances) altogether. There would be something in this proposal for everyone.
We must not let our gloom over the shocking short-term changes to pensions close our eyes to the window for reform which has just been opened, however narrowly. Over the next few months I hope we will see a growing consensus for carefully considered, proper reform of pensions tax relief so that we can genuinely tackle the crisis of under-saving in this country.
Steve Webb was minister of state for pensions between 2010 and 2015
Key points
The reduction of the lifetime allowance to £1m will simply make matters over the lifetime allowance worse.
Real damage could come if top and middle managers decide to do minimal pension saving.
What is really needed is a once-and-for-all overhaul of the whole pensions system.
