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Pension funds association urges Government to make pensions taxation "simpler and fairer"

UK pension funds have challenged the chancellor of the Exchequer's proposals on the treatment of pension contributions.

According to the National Association of Pension Funds (NAPF), the Government must support good quality pensions by increasing the supply of long-dated and index-linked gilts and abandoning their complex and costly proposals on the tax treatment of pensions contributions.

Instead, the NAPF argues, the Government should adopt the NAPF's alternative approach, which would incorporate a "simpler and fairer" approach to pensions taxation, to radically reduce the annual allowance for tax-favoured pension contributions from the current limit of £245,000 to a range of between £45,000 and £60,000.

This would work with the grain of existing pensions tax policy and allow Government to raise much-needed additional tax revenues. But, crucially, the NAPF's solution would eliminate some of the arbitrary and unfair consequences of the Government's proposals.

The NAPF estimates, under the wrong circumstances, many employees earning salaries between £40,000 and £80,000 and not just the top 1% of earners could be caught by the Government's proposed new regime. This could happen if someone received a promotion, relocation expenses or a redundancy payment.

And based on NAPF research, the Government's proposals are likely to disengage senior company pensions decision-makers from pensions. At a time when workplace pensions are in a fragile state, this could further undermine pension provision across the income scale if, ultimately, schemes close.

NAPF chief executive Joanne Segars said: "The next 12 months will be critical for UK pensions. It is essential that the Government makes the last budget of this Parliament a Budget for Pensions.