The Investing and Saving Alliance (Tisa) has called for regulatory alignment for defined contribution (DC) pension systems and also supports calls for DC tax reform.
Renny Biggins, head of Tisa Pensions, explained that the advent of auto-enrollment has resulted in “millions of DC savers embracing two different regulatory regimes”.
“The separate rules governed by the DWP/TPR and FCA require separate rules, even if the separate rules have the same consumer objective,” he noted.
“This creates discrepancy in results and inconsistent consumer journeys. This is causing confusion and disengagement – especially as we see a growing number of consumers being members of schemes that span both regulatory systems.”
With this in mind, Tisa recommended merging regulatory regimes for DC pensions into a single regime, which would mean all DC retirement savers would benefit from consistent consumer journeys, levels of protection and opportunity.
According to Biggins, this shift would also simplify the pension framework and potentially help “increase consumer engagement, knowledge and ultimately retirement outcomes.”
In addition, Biggins has reiterated recent calls for the government to reform the pension tax, warning that current pension tax breaks “may discourage retirement saving and dilute or even hamper broader government policy.”
“Tax breaks should be an incentive to save for retirement, but we’re currently seeing some of them having the opposite effect,” he said.
“Given the significant differences between performance-oriented (DB) and DC, our suggestions relate only to DC, but a separate review should be conducted to verify DB allowances.”
In particular, Biggins suggested that both the Lifetime Allowance (LTA) and the Tapered Annual Allowance (TAA) should be abolished.
He explained: “Consumers currently approaching the LTA are halting retirement savings to avoid the 55 percent tax burden that applies to all savings that exceed the threshold, while removing it would lead to larger pension pots and the possibility of spend more in retirement.
“This group may also be more inclined to invest in productive financing opportunities, but have no incentive to do so.
“The TAA is incredibly complicated to understand, even for finance professionals, and with the proposed elimination of the 45 percent higher tax rates, that complication needs to be addressed.”
Biggins also suggested that the annual money-buying allowance was “no longer appropriate” and explained that the previous level of £10,000 should be restored, particularly after the impact of the pandemic and cost-of-living crisis.
Industry experts have repeatedly urged the government to reform or review pension tax credits, particularly after the chancellor failed to mention pension tax reforms in his recent emergency mini-budget.