6 days ago
Labour accused of unleashing ‘stealth tax' on pensions
Labour is preparing to unleash a 'stealth tax' on pensions, critics have warned.
The new Pension Schemes Bill will give the Government the power to force pension funds to invest in British assets to help spark growth.
Yet critics of the reform argue the change, laid out in the Treasury's Pensions Investment Review published Thursday, risks lower returns for savers.
Pension industry experts also called into question government claims that the package of reforms could leave retirement savers £6,000 better off.
Tory MP Neil O'Brien called the plans 'a massive stealth tax' and said pension savers will 'get lower returns' so the Government can reduce its borrowing costs.
Shadow chancellor Mel Stride said the move was an extraordinary overreach. He said: 'Labour is crossing the Rubicon into directing the public's savings. Pension pots are there to secure retirements, not to bankroll a government.'
Last month major pension providers said they would voluntarily commit to investing 5pc of their total funds into UK assets by 2030. However, the new reserve power would go further and mandate how much of savers' money needs to go into UK plc.
Experts within the industry have also thrown scorn on the plans. Tom Selby, director of public policy at AJ Bell, said the move 'puts a gun to schemes' heads and will create those mandatory targets in all-but-name'.
Laura Myers, partner and head of DC pensions at consultancy LCP, said the threat of the Government telling trustees how they should invest was 'a step too far' that 'risks losing sight of the primacy of member interests'.
James Carter, of investment firm Fidelity International, labelled the power to direct pension scheme investments in the future 'a concern'.
pension contributions made via salary sacrifice work schemes. If implemented the changes would cost the average earner more than £500 a year in extra income tax and National Insurance – and whittle away their pension pot and their retirement potential.
The Government has said that the changes within the new review will result in an additional £6,000 on average being added to an individual's pension pot over a lifetime of saving, as revealed by the Telegraph.
However, Sir Steve Webb, a former pensions minister and now a partner at LCP, has said he would not 'put any weight' on the figure.
He said that while lower cost pensions due to reforms could see savers add to their pots, the increase will only be marginal and there is a risk that costs actually rise, adding: 'Even the assertion that there will be overall cost savings is far from obvious.'
Mr Selby added: '£6,000 isn't exactly a big potential 'gain' over the course of a retirement in return for the extra risk that is likely to be taken on. Entirely possible the gains will be higher but they could also be lower.'
