The late-pain robbery! (why pensions are still for the chop)


Rabbit in waiting (thanks Claer)

It’s been two weeks since the Treasury announced no change on pension tax-relief and everybody’s happy nowadays.

The forestalling jamboree that had seen SIPP provider AJ Bell estimate £1.5bn flowing into wealth preservation schemes (sorry SIPPs) has been de-railed.

We are -according to Claer Barrett, preparing for probably the most boring budget-ever.

The consensus is that the rabbit is back in the hutch and won’t be pulled from any hat on Wednesday.

Meanwhile Osborne speaks to the papers about the need to cut public spending still further in the light of another “unprecedented global crisis” with “unprecedented global instability”.

Where cuts can be made – without “alienating his pre-referendum voting base” – is not clear.

There’s a lot of old-hat but no obvious rabbit.


Plowman – prophet of doom?

I ruminate on uncomfortable facts. Facts like this one which makes the FT’s front page


£18bn out of pocket?

I’m not referring to the halo around Maria Sharapova’s head or the bling on Vijay’s fingers. I’m talking about the £18bn black hole in George Osborne’s budget.


Budget or Fudget?

I don’t get the “now’s not the time” argument. If the betting on the next prime minister is an indicator, Osborne has lost ground to Boris since last autumn when he was ante-post favourite. This is Paddy Power March 2016 (ne.xt Prime Minister)

Screen Shot 2016-03-13 at 06.56.49

But these odds aren’t screaming “this will be Osborne’s last budget”.

Why is Osborne so keen to fudge it at the budget? It beats me!


A referendum on BREXIT, or the the Budget?

And while the referendum might be a “game-changer” Brexit at 9/4 compared with the 1-3 on us staying in, is a long-shot. (March – Paddy Power)

Is that 1-3 price based on  something- perhaps inertia – but if it’s based on the announcement on pensions, then why are the odds pretty well the same as they were before the pension announcement.

The book-makers aren’t always right (and they called the last election as wrong as the pollsters), but they reflect the Zeigeist. If the crowd has wisdom, then the wisdom of the crowd is that the EU referendum is not going to be a referendum on the Budget.


rabbit redux

Brother Braer could still be a killer!

Rabbit redux

I predict the rabbit will be back

  1. Because i don’t think Osborne is as desperate as he’s made out to be – he’s still in the box-seat
  2. Because he has that £18bn black hole to plug, the OBR to appease and his reputation to keep intact
  3. Because the market intelligence should be telling him that this June 23 is not going to be a referendum on his budget

There’s a fourth, the previous rabbit was a very tired bunny. Osborne had trailed having a go at pension tax-relief for a year and made it clear at the Autumn Statement that the Budget would be execution day. That bunny has been out of the hat for too long to have any impact “hat or no-hat”.

Rabbit redux (the rabbit in the hat is back), involves raiding pensions to plug the £18bn black-hole , but he’ll do it by taxing the benefit not the contribution.

Swapping pain today for pain tomorrow is part of fudge it (not Budget) unless he can book the tax today. George is keen on quick wins from pensions. His “low hanging fruit” a couple of years back was the Royal Mail pension scheme, whose assets he sequestered while its liabilities still sit on his balance sheet.

Gain today- pain tomorrow

This “gain today- pain tomorrow” approach can easily be applied to on-going (rather than one off pension larceny. Osborne doesn’t have to have a go at tax-relief to have a go at pensions as Gordon Brown discovered.

Brown’s dividend tax that has reduced the return on our pension funds to bolster public revenues has been derided by successive Tory Governments since its introduction in 1997, but it has never been reversed.

With the weight of the past upon him, I doubt that boy wonder will have another go at the £7.3bn he gives away on the tax-priviledged investment status of funded pensions.

But the £17bn odd that he loses from employer contributions to people’s “deferred pay” is a number remarkably adjacent to his £18bn black-hole. Since those who are getting this money as a “benefit in kind” are mainly the pension rich public servants in Government funded jobs, you might consider they are immune from change.

Think again. The 10 year agreement struck with the unions to preserve public pensions covered benefits and funding but did not cover taxation.

Osborne is staring at an open goal where all three points will be his with a decent strike of the ball.


The rabbit in the hat is back

The pensions rabbit that I am predicting in the budget is an attack on the value of our pension benefits in payment, not an attack on pension contributions in payment.

Instead of taxing tax-relief, he will tax our benefits.

I predict a three-pronged approach

  1. Defined contribution schemes will get a new fund manager (HMRC fund management). The annual management charge on HMRC funds will be 100%)
  2. Defined benefit schemes will issue pension sharing orders with the HMRC. Beneficiaries will find their pensions reduced in payment in proportion to amounts paid to the HMRC by their pension schemes to meet Osborne’s demands
  3. The amounts siphoned out of DB and DC funds won’t be paid from the investment return. They will be calculated as a percentage of the pension benefit received, reflecting the value of the national insurance and income tax lost to HMT.


A tax by any other name?

Many will read this and think, that Plowman is daft, the Government has ruled out all taxation on pensions in the Budget (now is not the time).

I have not read that Treasury press release (sent to the Times and reported on by the rest of the media). But I understand that the Treasury is ruling out any change to payroll and self-assessment changes, not least because of the time it would take to get this in,

The raids I envisage (1-2-3 above) by-pass payroll, by-pass self-assessment and leave people’s pay-packets unchanged. Osborne knows the power of leaving pay-packets unchanged.

Pain today can be exchanged for pain tomorrow without the back-benchers revolting or future pensioners rioting in Trafalgar Square. Plugging the black-hole might be more of a positive than a docking of future pension rights – a deficit.

It is a tax by another name – what I’m describing is a stealth tax not a wealth tax, but that’s why I think it is still on the table.


Well worth a read BTW

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to The late-pain robbery! (why pensions are still for the chop)

  1. Gerry Flynn says:

    Are you saying that the occupational pension scheme will have to reduce pensions that are already in payment to recover payments made to HMRC?

  2. Harry Lime says:

    Henry, if you’re suggesting what I think you’re suggesting — which is effectively nationalization of all private pensions — you appear to be even less grounded than at first blush. Perhaps you should refrain from further speculation until after the budget…

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