I did state there were still some tax advantages to pensions, such as paying no NI on the contributions and this not being charged to pension-aged people on withdrawal, plus the tax free lump sum. It’s possible, of course, but rather rare I would think, that anybody deferring 62% tax on contribution would be withdrawing all their money at basic rate tax.
People forget that these tax advantages were put in place for very good reason: to encourage people to save for retirement. It’s meant to be an arrangement that provides tax advantages, as an incentive to save. Why else would anybody lock their money into a product where they cannot access it for decades? The problem is uncertainty over the actually being any tax advantage remaining by the time the money is withdrawn because successive governments keep moving the goalposts. It destroys all trust in the system. The government are creating a huge risk for which it is no longer clear that the potentially higher returns provided by their tax incentives will compensate, so they are actively undermining the system. People take the tax rate risk in terms of the fact general taxation rates may change before withdrawal (although it’s clear that at this point this is not just uncertainty, rather a highly probable downside for current pension investors given the likely trajectory of income tax rates) but if the other rules around LTAs, tax free lump sum, allowable retirement age (to access your own money!), NI pensioner exemption, inheritance tax rules keep being changed then how can a reasonable person say “here’s my money, I’ll just take a punt and hope you don’t screw me over”? It’s turning long-term investment planning into something more akin to a casino game if the other party to the contract arbitrarily changes the rules on a regular basis and you have no right to withdraw your funds when they change the terms. This continued manipulation of the system, always of course for the government to try to get its hands on more of people’s life savings, is destroying trust in the system and the perceived incentive that the beneficial tax rules are meant to provide because these may well not apply and you have mo way to cancel the contract and retrieve your money when they change the terms.
People are already taking investment risk, interest rate risk, currency risk, income tax rate risk with these investments. I think the endless raids on top of that are a step too far for many; all trust in the integrity of the system has been eroded. The final nail in the coffin would be if they tried to mess about with the relief at the point of contribution. At that point I think the industry would become obsolete. I also suspect that’s why they’re now insinutating that they should attack ISAs: rather than repair what’s wrong with the pension system the cynical part of me thinks that they’re trying to engineer a way to ensure there’s no realistic alternative by restricting ISAs (via which this tax rate risk at least can be removed).
It seems very counterproductive to discourage responsible and prudent behaviour in this way if the hope is to get more people to save and become self-sufficient in retirement, which is why numerous independent reports on the topic for several years now have told the government of the day consistently that they need to just leave the system alone if they want to encourage pension saving. Sadly - as ever, it seems - we have a government which insists on ignoring very sensible economic advice.