Whatever happened to the reform of pension tax relief?


George now travels by train (thanks Sophie)

The Government’s plans to resolve the injustices of the Pension Tax Relief system appear to have been ditched. Announced in the budget of 2015, expected in that year’s autumn statement and postponed in the months running up to this year’s budge, they now appear a casualty of BREXIT.

For those who don’t remember, they were officially postponed because of the market uncertainty we saw at the beginning of the year. The market is now back to record levels but there is no talk of reigniting the radical reform being worked on by the Treasury.

Of course the real reason that tax-relief was ducked, was to give the Remain campaign a clear run. Of the many thins for Osborne and Cameron to regret, shelving good policy for political expediency will be an after thought. You always got the impression that under Osborne, pensions was a political football to kick around the yard. The kids are out of the yard now- BAU means more unfairness.

The football’s back in the cupboard.

The Government is pressing ahead with its plans for a Lifetime ISA, though the enthusiasm seems thin. Yesterday – at last – we got the detailed regulations for this product, so asset managers and insurers can get on with building the thing.

It’s a bit of an unwelcome smell for those of us who are getting on with implementing the main event- auto-enrolment. I am not in the DWP Select Committee/Ros Altmann camp of seeing the Lifetime ISA doing a lot of harm.I just with that Treasury time was put to better use.

We have terrible anomalies in our pension tax system.

  1. People who are due tax relief (or Government Incentive if we have to call it that) AREN’T GETTING IT
  2. Some people who have saved all their lives now find themselves paying penal taxation rates on income in retirement of over £35,000
  3. Meanwhile, people can have pensions five times that and pay less tax.

The blog’s not long enough to fully explain, but in synopsis; we are denying thousands of people auto-enrolled and choosing to be in occupational pension schemes (that operate under net-pay) even basic rate tax relief.

Meanwhile, those still in defined benefit pension schemes are protected to the point that pensions apartheid becomes more vivid and real every day.

The taxation system that governs pensions is fundamentally flawed so that the pension wealthy get away with blue murder while the pension poor remain so.

There was a need for tax reform- that need has not gone away.

We may have a downgraded pension minister, the Treasury may have the keys to the political football cupboard, reform may be postponed to meet the new agenda.

But the people who are pensions poor will remain pension poor and those who are wealthy will just get wealthier.

The Lifetime ISA is a confusing irrelevance.

Without Altmann in Government, there is no-one saying these things, but these things need to be said.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Whatever happened to the reform of pension tax relief?

  1. Harry Lime says:

    Re: “The Lifetime ISA is a confusing irrelevance.”

    Thank you for neatly summing up the entire LISA distraction in seven short words. It is truly odd that the govt persists with this folly while the rest of the edifice is in such disrepair. Unfortunately we live in an era where politicians prefer meaningless soundbites and hollow gestures to substantive action.

  2. Bob Ward says:

    Hear, hear Henry. It is also pleasing to see you targeting where the problem lies – with the Treasury (i.e. Chancellor) and not the providers as has previously been muted by many. I have written several times on this topic since the ill fated budgets separated the LEL and the Trigger point above which employees get automatically enrolled. No thought was given at that time of the affect on tax relief not being available for those between the thresholds.
    Auto enrolment was rolled out by the Government and the headline, and all tPR literature from the standard joiner letter templates to the vast amount of money advertising and TV all presented that the AE pot would consist of contributions from the Employee, from their Employer and from the Government in the form of tax relief. These were the rules of AE but the Government has reneged on the TR in part. In the private commerce world this effectively would be challenged under false advertising at the very least.
    The Government has created the problem and should rectify it, not the pension providers who should not be expected to change their systems every time a Chancellor wants to manipulate the tax collections.
    The solution is simple and systems already exist – for ISAs which receive tax relief instantly. For pensions relief can be given for those on lower earnings through the use of a coding input to payroll where earnings between the threshold result in an addition of tax relief which the employer can immediately offset with his RTI tax payments. Relief is given up front and there is no protracted delay or complicated admin as suggested by others in the industry to-date.

  3. Sally Gordon says:

    Well intentioned article I am sure but poorly structured and must be almost meaningless to anyone not familiar with current and proposed rules.Can do better

  4. henry tapper says:

    Thanks Sally – am I in detention?

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