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Treasury proves simplification is obviously too complex
by David Trenner on Mar 24, 2010 at 15:50
In his Budget speech Darling said that we might see the scrapping of the default retirement age of 65 and that he 'would make public sector pensions more affordable.' It was never going to be an exciting Budget, but there was some hope that Mr Darling might at least nod in the direction of two pensions areas which will now need some urgent attention after the election.
Since Labour came to power in 1997 the number of people in private sector employers’ occupational pension schemes has fallen by more than 35%, leaving fewer than four million members, and this figure is set to fall further as more employers close their schemes. This means that the need for NEST is becoming ever more urgent. Full implementation was put back a year to 2017 in the pre Budget report (PBR) to save the government money on tax relief, so I suppose we should be grateful that Mr Darling has done nothing to make matters worse!
The abolition of higher rate tax relief for those with income in excess of £150,000 has been the ultimate example of how to advance pensions complication. The anti-forestalling regulations were difficult enough without the further twist added by the PBR, and the consultation paper issued in December has been met with almost universal opprobrium. Mr Darling could have accepted the National Association of Pensions Funds suggestion – supported by many pensions experts – that he should simply reduce the annual allowance to perhaps £50,000 or £60,000. If he had cut the annual allowance by 75% in this way he could have saved the higher rate relief simply, and without giving a kick in the groin to those of us who just want the government to encourage pensions savings.
Instead HM Treasury today published a summary of consultation responses, and concluded that the simple approach would be too complex. The Finance Bill will therefore define the different incomes which apply towards the £130,000 threshold and to the £150,000 limit. It will define the 'two-way age-related factors' needed to apply for defined benefit schemes, and it will ensure that 'negative deemed contributions are fairly recognised and taken into account'.
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4 comments so far. Why not have your say?
Julian Stevens
Mar 24, 2010 at 17:24
All the other vastly more fundamental and pressing things about the current pensions framework that need to be put right to restore at least some measure of public confidence?
The annuity trap? Lack of inheritability of unspent funds? Tax on dividends? Life Insurance allowable as an integral element of a live Personal Pension plan? Restoration of Waiver of Premium cover?
All the rest is just peripheral.
report thisJamie
Mar 25, 2010 at 09:26
I agree with the points raised in the article, we've said goodbye to simplification & introducing further confusion with changes which could be simple. However, the complication is only going to affect high earners who are already contributing to a pension anyway so there must be some degree of confidence there.
I have to disagree with you point about inheritability of pensions Julian as pensions have always been about providing an income in retirement not to pass on a fund tax free to the spouse again, this can only support high earners who are living off other sources of income.
I also don't agree that you're suggestions will restore public confidence, to generalise we're all to blame. Life offices have done their part, unscrupulous advisers have picked at their fair share of clients & the government has blown a hole in the confidence.
Further changes are needed, I don't have any of the answers, but what is needed is a process to reward people for saving for their retirement without the risk of a life-long gamble as to whether they would have been better off spending the money for 40 years.
report thisNULabour - Legalised Robbers
Mar 25, 2010 at 09:52
is a process to reward people for saving for their retirement without the risk of a life-long gamble as to whether they would have been better off spending the money for 40 years.
The disguting thing is that all the time politicians are allowed to continually change the rules (seems to be increasing from it's previus 5 yearly norm now) to suit their re-election goals rather than provide any just and fair planning for an individual, people will increasingley think stuff it I might just as well p**S it up the wall..... or puit it in moveable assets they can't find or get hold of
Actually they may well not be legalsied robbers as arguably they robbed a sovereign state (IRAQ) by invading it illegally.
report thisPhilip Wise
Mar 25, 2010 at 12:54
Take:
1. how much money is invested in pensions.
2. the lack of political fall out from the dividend tax raid and the rise in minimum pension age
3. the lack of popularity and trust in pensions
Add them together and what do you get?
A big pot of money which the government can raid without much opposition.
Pensions are a sitting duck. You get lured in by the promise of tax relief. But once you're in, you can only get out if and when the government says you can.
So, if you were the Chancellor and wanted some money whilst keeping "taxes" down, how long could you resist the urge to raid the pension pots? I hope Darling isnt reading, but just think how much money he'd raise if he:
1. increased minimum pension age to 60/65 (thats five more years of dividend tax)
2. taxed all the income that comes into a pension - interest, rental etc - at the same rate as dividends - to make it fair
3. made the PCLS taxable (after all, they dropped the "tax free" part of the name four years ago, and said that it might not be taxable in the future if we came upon hard times).
How much would the people that voted for him care? That might raise enough to pay for the government's unfunded schemes, strengthening Labour's hand in the war against the private sector
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