Aviva proposes sweeping pension reforms
Aviva is calling for a series of reforms to the UK pension system to make retirement saving “more flexible, relevant and attractive to savers”.
The insurer says research has identified “widespread confusion” among Britons planning for retirement and it would therefore like to see the introduction of a flat-rate tax relief on pension contributions.
In addition, the firm believes that replacing pension credit with a higher basic state pension would simplify matters and that allowing early access to pension savings would remove a “psychological” barrier to pension saving for many.
With regard to the tax benefits of pension saving, research by Aviva indicates that the vast majority of people do not understand how tax relief works for them.
The group is therefore proposing that a harmonised rate of tax relief (for example 30%) is adopted to replace the higher and lower-rate system currently in place.
The firm suggests that this change would benefit and encourage the 85% of people who are basic-rate taxpayers, potentially adding more than 14% to the value of a pension fund at retirement.
In addition, the change would be neutral for many of the 15% of people paying higher-rate tax at retirement, Aviva claims.
Finally, the insurer recommends the introduction of alternative work-based savings plans, saying “many young people do not recognise the benefits of saving into a pension when retirement can be more than 40 years away”.
Employers could therefore be encouraged to provide shorter-term work-place savings (such as employer-sponsored ISAs) for those under 25, as an alternative to pensions.
Category: Aviva News, Insurance News
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