Where were the Tory backbenchers at the last pension debate?
A beck-bench revolt over pensions?
Pension consulting firm Mercer report that many large employers are limiting high earning employers to a £10,000 pension contribution next year for fear of the tapering annual allowance. Instead of pension contributions, these employers will be rewarded with extra salary and employers are busy explaining all this to bemused staff with the help of state of the art modellers and workplace guidance.
In a month’s time, (as the second afternoon of the Cheltenham Festival progresses), the Chancellor will announce how pensions will be taxed going forward. I do not expect the tapering annual allowance (based on total pay and including pension contributions) will feature in a sustainable program of savings incentives.
If the Treasury had planned a back drop against which to deliver meaningful change, they could have done well to have designed a more farcical system of checks and balances that will prevail from April 2016.
The months preceding April – with the concessions of multiple pension input periods- allow advisers free play to finesse tax laws to “max-out” pension contributions in advance of the dark years to come. The trawler sits above the herring shoal;- nets bulge!
Meanwhile the FT reports that Tory backbenchers are threatening “revolt and explosion”, if the Chancellor restricts the basic human right of any higher rate tax-payer to fill their boots on an ongoing basis with free money from the cash-strapped coffers.
Have you ever heard things so ludicrous?
Tax hysteria?
Let’s be clear, the hysteria that greets the slaughter of sacred cows such as higher rate tax relief, is in sharp contrast to the apathy that surrounded the WASPI debate. Where were these “pension champions” when the Tory back benches were deserted and the rest of the house debated changes to the state pension? (see picture above)
The blithering idiots claiming the Tories will lose middle England over pensions tax-relief, have no touch with reality. Tory middle England may pay higher rate tax but it isn’t funding pensions at £10,000 pa. Even if – as I think highly likely – the Chancellor replaces tax-relief with targeted savings incentives and moves to a nuanced version of TEE, middle England isn’t going to be very much bothered. Unless , that is, middle England sees a drop in take home.
We are – as Bonaparte called us- a nation of shop-keepers;- or more properly “a nation of shoppers”. We worry more about the price of petrol than the state of our pension funds.
We don’t live long and happy because of higher rate tax-relief!
Somewhere along the line, someone got into their head that not having the entitlement to higher rate relief in retirement, would cripple the standard of living of higher rate tax-payers in retirement.
Historical statistics show that even with the massive incentives available to higher rate taxpayers in the next 50 days (till April 6th), very few of us max out our pension allowances, partly because the system is so complicated and mostly because we don’t want to tie up our capital reservoir in something “frozen” till at earliest 55.
Meanwhile huge numbers of us max out our ISA allowances because we know what they are, they are low and they give us property rights on our cash (even if we rarely exercise them).
(Tax) lobs for the boys!
With due respect to actuarial consultancies such as Mercer (and my own) the current complexity of LTAs , PIPs and Annual Allowances (tapering or other wise) is benefiting only those paid to explain them. As with the wealth advisers , tax advisers and attendant journalists, lawyers and accountants, we privately welcome any further complexity that Osborne can throw at us.
Were it not for all this mess, we would have nothing to educate/guide/advise/consult/advise or write about!
But the point of law is not to support professional services firms, it is to keep people honest, and as this blog shows, the current pension laws are making dishonest men of us all.
Anything is better than this.