“Fair” will have to wait – how this Government fluffed pension tax-reform.


In April 2015 George Osborne announced a root and branch reform review of tax-relief

We expected more in the Autumn Statement that year- nothing came

We expected an announcement in the budget 2016, instead we got a deferral a few weeks before.

The Brexit vote came and went, George Osborne and David Cameron went.

We got a new Prime Minister who pledged to be on the side of those just getting by.

Instead of reform we got more austerity. In the name of Brexit we had another election; instead of being stronger, the Government got weaker.

At the beginning of the week, David Gaunt, the new Secretary of State for the DWP wrote in the FT that  he would not shy away from the hard pension decisions; but when pressed on what was happening to the long promised radical reform of the pension taxation system, he told the ABI conference the very next day he “saw no particular consensus emerging” for a new form of tax-relief.

So the Government have kicked one of the key planks of social reform into the long grass, on the basis that not enough of us can agree. I can think of no worse abdication of responsibility than this.

For the people who are the losers have not been consulted, the decisions have been taken by a handful of back-benchers who have spoken out of vested interest both for their own finances and for those of the privileged minority of voters who have higher rate tax to lose.

Is this what Theresa May meant when she stood outside Number 10 Downing Street and stood up for the common people? Was she really saying she’d perpetuate the totally ridiculous pension taxation system that redistributes money from the poor to the rich?

Putting aside her shambolic inability to lead through the election, can we today see any coherent thrust to social policy in this Government? I would suggest that a Government that considers making policy by means of “particular consensus” is one that has lost its mojo. This Government, only a few weeks old, is showing “no particular sense of leadership”, in fact it is failing the very people it set out to help- and doing so in the most wimpiest of fashions.

I have nothing against David Gauke, Gregg McClymont – who I take as a guide in these matters- considers Gauke a good guy, alongside Richard Harrington and Simon Kirby – a triumvirate of good guys. So I won’t jibe him personally.

Called to account?

Just because we have a new shade of blue in Government, does not mean that previous promises cannot be kept. Apart from the fundamental unfairness of the tax perks given to incentivise contributions, there are particular nonsenses, that because of the failure to get to grips with the big picture- will persist.

  • We will continue to have a sizeable minority of non-tax-payers saving into net-pay workplace pensions and getting 20% less for their personal contributions than those who accidentally find themselves in “relief at source” schemes.
  • We will continue to have a system of LTAs, AAs and PIPs that pretty well no-one understands.
  • We will continue to see the tax-erosion of pensions in payment by penal taxation, where ordinary people have saved hard all their lives.
  • The complexity will continue to give those who can afford tax-advice, opportunities to game the system at the expense of those who cannot
  • The HMRC will continue to pursue those scammed out of their savings for penal taxes while those who have filled their swag-bags with other people’s money- walk free,

Pension tax-relief is a wholly unjustifiable rich man’s perk which diverts money from providing universal benefits to provide a minority of already rich people with wrappers for wealth preservation.

The pension freedoms are being used by the wealthy for all kinds of wealth management while those at the other end of the scale are being left to fend for themselves with little more than Pension Wise to guide them.

It is time we acknowledged that those just getting by are not being helped but being abused by this state of affairs.

If I had been at the ABI conference, I would have asked David Gauke how the maintenance of the current pensions system could be squared with any coherent policy on social justice.

I wasn’t at the ABI conference, and I suspect you can guess why!


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to “Fair” will have to wait – how this Government fluffed pension tax-reform.

  1. Peter Tompkins says:

    That is a bit harsh. I can respect the view that pension tax relief should be made more even, but the gross inequity we used to see where people like me could pay large contributions and receive 40% tax relief, benefiting by taking a quarter of the fund out tax-free and the rest being taxed in part at basic rate and in parts at 40% has just some extent gone. The massive annual allowance I was able to exploit 10 years ago has been replaced by a much smaller level – and one that dwindles as you get very rich. I suspect that the potential impact on the savings ratio of removing higher rate tax relief would be significant and have other economic consequences the government might not wish to generate. But I do agree that the new pensions Minister may have found this to thorny an issue to get his mind around yet.

    • Phil Castle says:

      Much as I agree with the vast majority of what Henry writes, I agree with you Peter with regard pension taxrelief for those who push in to 40 % tax. Those few clients I have who are 40% taxpayers aren’t rich by any means and are “just getting by” in their own way, many with little disposable income they can save due to other committments which aren’t discretionary, however when the amount they are being charged at 40% is on say £5k of income above the 20% tax rate, it makes sense to encourage them to save that little extra for their retirement. With the lfietime allowance as it is, the tax man is only delayed in getting his slice of their income and for those with incomes that vary eitehr side of the 20/40% split it is much fairer.
      Most of thes “initiatives” don’t affect the ultra high net worth, they just hit the middle income “workers” who are what actually makes the whole social system work.

  2. Adrian Boulding says:

    I think Government have got stuck on this problem because 80% of the tax relief goes to DB schemes and it is difficult to see how to reform that. Once we can sort DB tax relief it becomes easy peasy to make DC more socially equal. Maybe some of us need to get our heads together and suggest a DB tax relief solution to Government. Adrian

  3. bobchampion says:

    I am sure that with the right attitudes solutions can be found.
    Looking at the two stumbling blocks mentioned in the comments.
    Why cannot pension income accrued after the date of introduction all be taxed at basic rate or whatever the rate of pension tax relief is?
    For higher rate tax payers with a Defined Benefit accrual why cannot there be a tax charge relating to the Annual Allowance accrual relative to higher rate tax relief being obtained on the employer contribution.
    What is trying to be achieved? What are the obstacles? How do we get around the obstacles?

  4. John Mather says:

    Maybe the “long grass” is where Brexit should also go if lack of concensus is the ruling factor

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