The law as it will be from this April will mean that people who choose to enjoy part of their pension freedoms while earning will have pension tax relief limited to the first £4,000 of their annual contributions.
The move is being met with by fierce lobbying by SIPP providers and in particular by the Tax incentivised Savings Association (TISA) who argue that
Those impacted are already enjoying the fruits of their tax incentivised savings, they are still able to enjoy recycling of these savings to get a second dollop of tax relief on the same money. All that has happened is that this privilege has been restricted by 60%.
The sense of financial injustice is exacerbated because it only impacts those eating the cake of freedom!
Put in everyday language, this is unfair on the tax-privileged saver and in particular on the tax-privileged tax-saver who is using pension privileges for tax-avoidance .
I have seldom come across such specious arguments. The generous tax-reliefs given to those who can afford up to £10,000 pa pension contributions, do not come from some entitlement. They are not “earned” but belong to an archaic system that should have been overhauled in 2015. The impetus of reform was stalled by the EU referendum and reversed by the Brexit vote.
The only reason we have kept the absurd inequalities which subsidise these well-heeled pension savers is that our Government is terrified to lose their support. They vote, their votes matter and they vote Conservative, if you are sitting on an 11 seat majority, you do not annoy the clients of Hargreaves Lansdowne.
These pension nimbys have no fiscal case to retain what is called the £10,000 Money Purchase Annual Allowance. Nor can they complain they are being treated unfairly relative to those in receipt of defined benefit pensions. While it makes sense to talk about drawing down from defined contribution pots, it makes no sense to talk of DB pots- as TISA do.
People who receive a DB pension are not gaming the tax system (whether the DB is state or occupational pension). I am one such person and my reason for wanting a pension for life has nothing to do with tax ( I did not take my tax-free cash on my DB entitlement). I have need of later life income to pay people’s bills.
Ironically, I could have drawn this income from my DC pot but chose not to do so because I wanted to continue to fund my pension to whatever I could afford ( a lot less than £40,000 pa). It was perfectly obvious that crystallising DC benefits would mean jeopardising my capacity to save for the future. I did not need a financial adviser to tell me this , I only used google.
If I had been advised by a financial or tax advisor to have drawn down my money purchase benefits that I had an ongoing capacity to fund at £10,000 pa , I would have rejected that position.
The Government in introducing the Money Purchase Annual Allowance, made it absolutely clear that the £10,000 limit was an interim measure – the direction of travel was clear. If you had decided to rely on recycling of up to £10,000, then you have had substantial opportunities to flex your PIPs (pension input periods). You have had chances to use unused reliefs and only now are you being restricted. The Government even provided a handy calculator to make my calculations easier http://www.hmrc.gov.uk/tools/pension-allowance/index.htm
It is time for the pension nimbys to pipe down
I should not pick on TISA exclusively, the howls of indignation at the curtailment of privilege come from all concerned with pension wealth management. There is no reason to have an MPAA at £10,000, even a £4,000 allowance is generous. The message needs to be clear.
Tax relief is for pensions, not for fooling around with flexible lump sums. If the wealth managers remembered that , then they would be encouraging their clients to use restraint and defer gratification. If the wealthy were interested in pensions, and not wealth preservation, we would see them calling (as I am calling) for alternatives to income drawdown which drew on collectivism to create economies of scale and insurance against extreme old age.
The pension nimbys protest too much, they are over-playing their hands and they are antagonising not just me, but many in Government who are fed up with their special pleading.