More Incentives need on Pensions, says IoD

4 April 2006

Responding to the release today of the Pensions Commission report, the Institute of Directors (IoD) urged the Government to introduce dramatic simplification of pension savings and far greater incentives for working longer.

IoD Director General Miles Templeman, said:

"We need to sweep away the complexity of the current system whilst at the same time increasing the attractiveness of working longer. Greater simplicity will be obtained from sweeping away means testing, contracting out and the state second pension. The incentive to work longer will be greatly increased by the IoD's innovative proposal to increase the size of the tax-free lump sum."

The IoD proposes boosting the incentive for longer working lives by increasing the size of the tax-free lump sum that can be withdrawn from a pension fund on retirement. The proposal is that the tax-free lump sum (25% at present) be increased by 5% per annum for each year worked beyond the state pension age up to a maximum of five years (i.e. a maximum tax-free lump sum of 50%).

Miles Templeman, said:

"The larger lump sum provides people with an incentive to work longer and the flexibility of access to a larger lump sum of money when they do retire. They can go on working, pay taxes and watch their pension fund grow in value and then have access to more money to pursue their retirement dreams."