I've been a financial planner for longer than I care to remember (well, 31 years to be precise) and perhaps it's just that I'm getting old, but the financial landscape seems to be changing at an ever more rapid rate.

That process continued in last month's summer Budget with the Chancellor announcing another Green Paper on Pension reform, along with a strong suggestion that he is considering tampering with tax relief on pension contributions in favour of introducing tax free withdrawals, in effect abolishing pensions in favour of much larger "Retirement NISAs".

On the surface freely accessing your pension fund tax free may seem an attractive proposition but, as is usually the case with politicians, all that glitters isn't good.

Let's look at a simplified example. It would currently cost a higher rate taxpayer £24,000 to invest £40,000 into a pension with tax relief. However, it would cost the same person £66,666 to invest £40,000 into the proposed "Retirement ISA" after tax.

If each grows for 20 years at a rate of 5% net pa, with the investor remaining a higher rate taxpayer, a pension fund of £106,131 could be achieved, of which £26,532 could be taken as a tax free lump sum and £79,599 as a lump sum taxed at 40%, i.e. £47,759 net. That's a total of £74,291 in the investor's hands at a base cost of £24,000, a net gain of £54,291.

The NISA, on the other hand would achieve £106,131 but at a base cost of £66,000, a net gain of £40,131. How is that a better deal?

Of course, a Green Paper is only a basis for discussion and pension company actuaries everywhere will be sharpening their pencils in the hope that the Chancellor can be encouraged to rethink his strategy. Pension reform is all well and good, but taking away one of the prime attractions of pensions, without offering a clearly improved benefit at the other end of the process, would be madness. In the meantime, make use of those valuable pension tax reliefs while you can!

Robin Sainty APFS M.A. (Cantab)