Tax relief may be safe but our pensions aren’t



I wrote yesterday about the shock announcement from the Treasury that it wasn’t going to do anything about pension tax relief. Normally the Treasury does nothing about tax relief without telling us, which was great for financial advisers who saw a surge in interest (and commission) from anxious tax-payers keen to “buy while stocks last”. Since the point of tax-relief was to encourage saving and the Treasury had no intention to change the status quo, no-one minded the pre-budget surge.

But this year is different, the Chancellor made it clear he wanted change and there is a massive surge in contributions in higher rate tax-payers buying now. The announcement from the Treasury will put a stop to that (well that’s the intention). Technically, the Treasury are engaged in “anti-forestalling” tactics. To those who don’t do jargon, the Chancellor has stopped people filling their boots.


Nice try but no cigar?

If you want to read a well written reaction to why the Treasury says it is not going ahead with pension reform, read “Nice try but no cigar; the Chancellor and pension tax relief“. In this blog Torsten Bell argues that the Chancellor didn’t change his mind but was stymied by the timing of the EU referendum and the splits in his own party. Torsten concludes

For the first time with this Chancellor, the Budget he delivers won’t be the Budget he wanted to give.

Reading the comments on the Daily Mail’s take on the Treasury press release (admittedly from a BREXIT fan-club), I see virtually no political win for Osborne.

This nugget is typical

Osborne and Cameron enemies of the British public.

If the announcement was intended to rally the readers of the Daily Mail, it seems to have failed!

Echoes of 2014?

So a humiliating back-down for a Chancellor in the pocket  of the party whips and the “In” Campaign then?

Not just the judgement of the Daily Mail readership but  the received wisdom in the parliamentary lobby.  A line accepted by every newspaper, broadcaster and political commentator.

But not by me.

Those in the pension lobby should be  immune to Treasury statements on the intentions of Chancellors (especially this Chancellor) in the budget.

In 2014, Osborne sent his patsy – Danny Alexander – then Chief Economic Secretary to the Treasury to the (then) NAPF – and . this . is. what. he. said….

Screen Shot 2016-03-05 at 10.11.18

No pension changes other than the most radical pension change of the twenty first Century!


Is this Chancellor for turning?

If Osborne was pursuing a personal agenda  in March he’d want a budget that

  1. Shows him to have the nation’s interest at heart
  2. Shows him not to be an opportunist
  3. Show him rising above the petty politics of party schisms emerging over the EU

Or so we would be given to believe

“Osborne is made of sterner stuff, he is a visionary prepared to lead his country, not to be Cameron’s poodle”.  (Paraphrase of Treasury Statements since 2010)

I have reviewed George Osborne’s career and this is the first time I have seen him put himself second to anyone. Forget the visionary stuff, I simply don’t see Osborne biting Cameron’s bullet.

He did back down on Pension Credits, but found a way to salvage his pride by pulling a massive restatement of revenues out of his hat. That was different.; Pensions Credits were set to send Osborne into a political tailspin.

Pursuing the changes outlined by Torsten (and less brilliantly in my blogs), would not have sent Osborne into a political tail-spin.

It is at best speculative that the electorate would have used the EU referendum as a vote of no confidence in pension reform.

I differ from Torsten in seeing no logic in Osborne leaving pensions alone. NONE WHATSOEVER.


Taxing pension accrual is easier than taxing pension contributions

Read the Treasury’s lips. Here’s the BBC saying there will be no changes in pension tax-relief.

Chancellor George Osborne has dropped plans to end or alter tax relief on pension contributions.

Note this is not the same as saying

Chancellor George Osborne has dropped plans to impose further taxes on pensions.

The trouble with cutting pension tax relief, is that the pain is immediate and severe. You don’t know what you’ve lost till it’s gone (eh Joni) and that would be so true of pension tax-relief.

Take away tax relief from someone on basic rate tax and you reduce take home by £240 for every £120o paid into a pension plan, that’s £100 per month less in the pay-packet

Include employer contributions  and you'd at least double that pain
Include national insurance and the pain increases again.
For higher rate tax-payers just double the trouble.
The pain is immediate and devestates the budgets of hard-working families.
This is why Osborne cannot abolish pension tax relief!

But taxing pension accrual is easy. Osborne has two ways, he can do the stealth tax on pension returns (but is unlikely to as the Tories have spent the last 15 years lambasting Gordon Brown for doing just that). Or he can tax pension accrual (not the same as tax-relief).

Taxing pension accrual -how it’s done

Taxing pension accrual is i very easy. You simply work out the theoretical increase in someone’s pension benefits (valued either on the money in (when the contribution is defined) – or you tax the increase in pension benefit “accrued” when it’s the benefit that’s defined.

Instead of taking your tax revenues through payroll, you take them from the scheme administrator, instead of reducing people’s take home, you reduce their pension and instead of calling it a reduction in tax-relief , you sell it to the nation as a painless way of making pensions and welfare “fair and affordable”.

The mechanisms for collection are all in place – Real Time Information, Scheme Pays . Member Record Keeping Systems and Investment Administration Platforms.

Noe of these need bother the CBI , CIPP, employers or payroll. Not only are the taxes painless, but so’s the administration.

Don’t fall for the spin

I am not saying this is what is going to happen, but I think it might well happen. It is what happened in 2014 and for all the reasons I’ve given in this article and Torsten gives in his, I think it is likely that Osborne will still tax pensions (though not through tax-relief).

On a straight “money-in, money-out” formulation, it amounts to the same thing. The big win is not higher rate tax on contributions, it’s the benefit of tax-payer contributions into Government pension schemes, corporate contributions into well funded occupational plans and getting back some of the £14bn that’s being lost as national insurance payments.

In my opinion, Osborne and the Treasury is throwing up a smokescreen which they will late justify as an anti-forestalling tactic, and will be pressing on with the pension taxation agenda using a device known as “Scheme Pays”.

When the  “Scheme Pays”, tax-relief- as we know it, remains untouched.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Tax relief may be safe but our pensions aren’t

  1. kate upcraft says:

    I’m with you all the way Henry, George will do noting that will damage his chances of being PM either after the referendum or in 2020 but he has to balance the books. The only fly in the ointment (and one that Treasury minister’s seem to be blissfully unaware of given David Gauke’s speech at Armstrong Watson last week is that the RTI data isn’t fit for purpose either to run PAYE, NI records or crucially scheme pays. There will have to be some serious collaboration between the treasury, HMRC and stakeholders if plan B is going to work.

  2. Phil Castle says:

    Very insightful, thanks for that Henry.

  3. henry tapper says:

    Kate, thanks for the link and thanks to you and Phil for your comments. I have to give a speech at the CIPP Newcastle event on what the Budget will do for pensions and payroll. I have spent a lot of time over the last 48 hours wondering what I am going to say.

    I agree with you Kate that without RTI working, we can’t have change that can be implemented in real time.

    It would be good to understand what the stakeholders need to do to make RTI happen for payroll and for pensions.

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