Pensions tax relief changes to fuel intergenerational tension
Widely anticipated changes to pensions tax relief could fuel inter-generational tensions, warns investment platform Hargreaves Lansdown.
It comes as the Department of Work and Pensions’ inquiry into intergenerational fairness draws to a close.
The work and pensions committee sought to establish whether older generations have accumulated more wealth and enjoyed better public services and benefits than younger generations can ever hope to achieve - see the Have baby-boomers had it too good, for too long? news story for more on this.
But Hargreaves Lansdown believes that if George Osborne announces a new flat rate of tax relief, which would see higher earners’ tax relief on pension contributions reduced, tensions between those who are in or approaching retirement and younger workers would be exacerbated.
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‘Younger workers face an uphill battle’
Tom McPhail, head of retirement policy at Hargeaves Lansdown says: “Today’s pensioners have worked hard and are now enjoying the fruits of their labours; no one would seek to deny them that. However we are deeply concerned that the younger workers of today face an uphill battle to achieve the same levels of retirement prosperity.”
According to Hargreaves Lansdown, workers of today can expect their pension to be worth a third less than today’s retirees, with average private pension wealth falling from £149,300 to £112,000.
Mr McPhail adds: “Younger workers look with understandable envy at the generous guaranteed pensions enjoyed by many of today’s retirees. By contrast, workers in their 20s, 30s and 40s today can look forward to later retirement, lower contributions and fewer guarantees. Any reduction to the support given by the government to pension savers risks inflaming intergeneration tension. It’s therefore imperative that the financial support given by the government to today’s younger workers is at least as generous as that enjoyed by their forebears.”
Firms encouraged to do more to support ageing population
But while older generations may have fared better from the pension system, concerns are mounting that the financial services industry will fail to meet their needs going forward.
As a result, regulator the Financial Conduct Authority has today launched a discussion paper on the how financial services can better serve the needs of an ageing population from mortgage lending through to the responsibility of managing their retirement income following the introduction of the pension freedoms last year.
It plans to publish a series of recommendations in 2017.