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Labour plans £1bn pension raid to fund 'job guarantee' scheme

Shadow chancellor Ed Balls wants to cut pension tax relief for top earners to fund a job scheme for the long-term unemployed.

 
Labour plans £1bn pension raid to fund 'job guarantee' scheme

The Labour party plans to scrap higher rate pensions tax relief for the top earners in a bid to raise £1 billion for a mandatory job scheme for the long-term unemployed.

Shadow chancellor Ed Balls (pictured) will announce the plans for the cut later today, according to the Financial Times.

The plans would see pensions tax relief for those earning more than £150,000 – who pay 45% income tax and receive the same in pension relief – reduced to 20% on contributions made, although the 40% tax relief will remain for those paying 40% income tax.

The £1 billion saving would pay for a ‘jobs guarantee’ for adults who have been unemployed for more than two years. The unemployed person would be guaranteed a job for six months, with the government paying the minimum wage and national insurance cost for the role.

Balls has previously championed a £2 billion tax on bank bonuses to pay for a youth job scheme.

Pressure has been mounting to cut the higher rate of pension tax relief, which costs the government £7 billion a year. It is argued that the wealthy benefit most from the tax relief but most higher rate taxpayers become basic rate taxpayers, or non-taxpayers, in retirement, meaning they do not ‘pay back’ the relief they receive on contributions.

In his Autumn Statement the chancellor George Osborne ignored these calls, instead reducing the annual limit that individuals can save into a pension from £50,000 to £40,000. He also cut the lifetime pensions allowance from £1.5 million to £1.25 million from next year.

Pension experts are tired of what they see as perpetual tinkering by politicians in retirement savings.

George Bull, senior tax partner at Baker Tilly, the accountants, said: 'Of course, every reasonable person would like to see as many people as possible benefiting from regular work. But why is it that politicians seem incapable of leaving pensions alone? Every year (twice in some years) new pension tax changes create further uncertainty and difficulty for those doing their best to plan for their retirement.'

16 comments so far. Why not have your say?

Mac

Jan 04, 2013 at 14:45

Why call it 'a pension raid ' ? This is rabid journalism ! What's being proposed is a removal of a SUBSIDY.

Once the State has made basic pension provision available (say 2/3rds av. wage) it should not provide further TAXPAYER-paid help : if you're on 1/2 mill a year, you don't need help to save for your retirement.

I speak as a 'conservative' , who benefits from the current system but can see what's wrong/unjust/plain daft about it......

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Jon

Jan 04, 2013 at 14:45

MPs should have their pensions cut first as an example before any other restrictions are placed on pensions.

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Jonathan

Jan 04, 2013 at 15:28

Ed Balls might want that but he doesn't have a say, he's in opposition so you might just as well listen to what I have to say much as him.

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Andy S via mobile

Jan 04, 2013 at 15:32

Well done Ed, and what happens after the 6 months are up?

This idiots short term plans are one of the reasons we are in this mess when he was advising that other idiot Gordon

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Andrew Hill

Jan 04, 2013 at 15:40

Surely we should be telling people who are unemployed that you have to do 40 hours work and we will pay you minimum wage. No extras based on the number of children etc. Perhaps some assistance if the work requires expensive travel to get to it.

Those who are fraudulently claiming would have to choose between the work offered or their clandestine activities.

Rather than the well intentioned but poorly supervised Community Programme of the 1980's the work should be meaningful, necessary and properly managed. If the participants wanted something better than minimum wage they would have to up their skills and motivation and apply for better jobs or create their own enterprise. Yes, initially it would cost a lot of money and a fair bit of organisation but it would get Britain away from the handout and dependancy culture.

And while we are at it how about matching the needs of industry and commerce to the college and university courses being offered. Then we would not have to listen to industry leaders moaning about being unable to recruit skilled foreign workers while graduates cannot get work. It used to be called manpower planning and used to be done by the industry training boards.

This IS a rich country so why we do we squander our wealth paying people to be idle. Whats worse we appear to be encouraging the dependancy culture.

Much as I loathe the vast majority of the current crop of politicians in the Westminster bubble the who said that along with rights comes responsibilities was, in my book, absolutely correct.

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sgjhaghsdg

Jan 04, 2013 at 15:55

I heard the sound of the final nails being driven into the private pension coffin.

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Graham Whiffen

Jan 04, 2013 at 16:04

Pensions Raid?

The last Labour Government has already made 'the pension raid' by the 5% robbery already suffered some years ago and not yet put right again.

Or is the 'pension asset raid' by the Lloyds HBOS takeover when the Treasury, very willing for Lloyds stock holders to take over the ailing banking group with investors money but deliberately concealing the true borrowing state of the fallen giant, that stripped the honest Lloyds share holder of 90% of their savings, when the truth finally came out.

This latest 'Ed Balls up' is not a pensions raid. It is another proposed tax. Labours answer to all problems, Tax, Tax and yet more Tax!

Possibly, just for once, it may be a tax directed at people that can better afford the extra burden but why do I feel that it is just another smokescreen load of woffle from a party that is devoid of any remorse for having reduced our state of National finances to where it is, and having done so, has the sheer front to whack on against any efforts to repair the damage !!!

I am fed up with incompetant failures telling all who will listen, how brilliant they are. Let the elected government get on with what they undertook to do and nearer the election, we can see where we are and then listen to the 'wisdom' of the idiots that heavily contributed to the mess we are all having to live with.

The mind just boggles at all these crack pot ideas to mend fences when they are just the old school, screw all and sundry systems that are the trademark of a failed political idealogy, operated without substance.

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Mark22

Jan 04, 2013 at 16:15

I find it intriguing that people have such short memories. It was only in 2007 that the rules were changed to allow large lump sums to be put into a pension. Until then, the amount that could be added to a pension in any given year was restricted to a small percentage of salary.

That it has taken five years to work out the problems is hardly surprising.

That the loss in tax revenue wasn't foreseen shows the incompetence of our politicians at the time.

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bigand

Jan 04, 2013 at 16:21

The only job creation I would trust Ed with is his own parities. For his next trick he will come up with a solution to curb the immigration excesses encouraged by his feckless government. T0553R

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snoekie

Jan 04, 2013 at 16:38

Ah, the crook who was one of the prime architects of the pension raid is now doing a Hollande, penalising those that work for their pensions by soaking them more.

Next there will be a raid on the pension pots of all, pensioners and savers alike.

I said crook, well, despite his (and his missus) massive fraudulent expense claims, neither has been interviewed by police, much less prosecuted, nor any prosecution for misfeasance, or should it be malfeasance, and total incompetence and ignoring of the duty to all citizens whilst in office.

His reward, continued employment and on the front bench. Who is aiding and abetting.

Prosecute all expense cheats, past and present, and add another charge attempted gross distortion of the English language in the attempt to justify his/her/their frauds.

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Ladysaver

Jan 04, 2013 at 17:30

People seem to forget that the 'tax break' on pensions contributions is in fact tax deferral. If you lock some of your income away in a pension, where you can't get it till you're 65 or more, you are forgoing that income - you are not receiving it and cannot spend it, and the logic is that you should therefore not be taxed on it. You ARE taxed when you receive it back in the form of pension income many years later, and, thanks in particular to Gordon Brown, any growth or dividends it earns while locked away for your future are also taxed. Governments need to be very careful on this one, as you cannot levy income tax on income that people do not receive. To do so is likely to leave them open to legal challenges that they could well lose.

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Bob

Jan 04, 2013 at 17:41

I agree with much of what Ladysaver writes but I think she (he?) has it slightly wrong on the way that pension funds are taxed. As I recollect it, it is only on dividends that, in effect, tax is levied. On other income, and on gains, the fund operates gross. This does, of course, tend to steer pension funds away from equities and into often lower - returning bonds or gilts.

As for the merits of the proposal itself, typically Labour is still under the illusion that Governments "create" jobs. They can certainly create unemployment but not, in my view, sustainable jobs.

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Ladysaver

Jan 04, 2013 at 17:57

I believe you're right, Bob - divis taxed but growth not. And of course pension funds hold a lot of gilts because regulation has made them do so - which may not be a great thing, although it does give them a degree of certainty about the future liabilities they will have to meet when they need to pay out annuities. BTW I agree that governments are not the best at creating sustainable, productive jobs. Ed Ballsup dreams of as many people as possible being clients (or should that be serfs?) of the state.

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peter montgomery

Jan 04, 2013 at 18:03

Balls has no credibility,both domestically and internationally.Still want to sell our gold reserves Eddie?

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Carefull watcher

Jan 04, 2013 at 18:25

Since when has a government been able to create meaningful jobs?

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Tortoise

Jan 05, 2013 at 10:39

Well said, ladysaver. The first person I have come across to understand that the so called tax relief is nothing more than a deferral. Ed Balls either does not understand this, or playing is venal political game of stirring up envy amongst his traditional followers whilst viewing those with the temerity to try and be self sufficient as an opportunity to raise more taxes. If this man ever becomes chancellor then we are all in trouble. The government in fact already makes a profit out of private sector defined contribution plans. By taxing the return of your own money as income pension funds do not get the benefit of the annual capital gains allowance and of course accrued dividend income is effectively taxed twice because of the loss of the tax credit. The government also uses the return of your own capital to reduce or evade the minimum income guarantee.

And as ladysaver said, you ultimately repay your tax "relief", often at a higher rate than the original deferral.

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