The Conservatives have launched a green paper to facilitate public consultation on the plans, and Osborne said in the budget that he was not averse to considering further "radical" changes to pensions, in the wake of recent pensions 'freedoms'.
But JLT Employee Benefits chief actuary Hugh Nolan warned that the potential reforms could prove an “administration nightmare".
Nolan said he welcomes the consultation, but feared unintended consequences for young people who may be affected by future changes in policy before they retire.
He stated: “The top 1% of taxpayers get 14% of the pensions tax relief, so the budget removes up to £13,500 of tax relief from the highest earners. There will be an administration nightmare for employers and employees impacted by this.”
Duncan Buchanan, president of the Society of Pension Professionals and partner at Hogan Lovells, said the idea sounded good in theory, but in practice could raise major policy issues.
“Will people trust the government not to move the goal posts and start taxing benefits when they are paid?" he asked. "And what about the pension savings that people have already made under the current basis? Will they still be taxable under the current system?
“Clearly there would also be huge complexity for active members of defined benefit schemes. They could face significant immediate tax bills, for example on a benefit that may not be payable for many years.”
Joanne Segars, chief executive at the National Association of Pension Funds, said she was optimistic that the consultation will mean the government will not “jump to conclusions” about what will work best.
She said: “Today’s announcement of a wider review of pensions tax is welcome news. We are pleased the government has wisely chosen not to rush into any new wider reforms or jump to conclusions about what will work best as a reform, such as taxing pensions in the same way as ISAs. This will be an important step and we will work with the government to secure a clear understanding of the long-term implications of any decisions."
Segars added: “Experience shows us that long-term success in pension policy is built on a shared understanding of a problem, a shared building of the policy solution and a shared responsibility for delivering that solution. For this review to succeed it must look at taxation of pensions in the bigger picture of what incentivises people to save consistently over the long term for their retirement.”