More argy-bargy in pension’s tax-trenches


Blessed are the peacemakers, until they wade into a debate on tax-relief. The saintly Darren Philp , maybe picking up from comments from ex DWP govt actuary Andy Young, tried to change the debate.

To summarise his argument, he suggests we start with a given objective, perhaps to get everyone to the retirement living wage (PLSA one) and work backwards to the solution that gets us nearest that. This is along the lines of papers from Demos in the 1990s on compulsion which tried to define the minimum people should live on in older  age to be self-sufficient. At the time Demos was talking about compulsory savings, now we are talking about savings incentives (we live in a kinder age).

I had thought that Darren’s placatory paper would soothe the savage brow of commentators such as David Robbins, Stuart Fowler and of course John Ralfe. Infact it inflamed the debate to bush-fire ferocity.

I was initially fooled by the ambiguity of David’s syntax into thinking he didn’t like the tax treatment of pensions, but then spotted that 1/X which takes you to ten microblog thread explaining why

What then happens is ugly and only for die-hard aficionados of this debate. John Ralfe comes in with a two-footed tackle , Robbins retaliates and about 50 tweets later, the debate ends when Robbins throws a bucket of cold water in JR’s face

What  David and John fell out about (and why it matters)

To make the argument clear I am going to have to use my words not David’s and I apologise in advance if I have read him wrong.

David has spotted that John’s argument for flat rate incentives of 30% on all pension contributions are in fact giving with one hand, after the other hand has taken away all the tax-relief in the first place.

What happens is that you find yourself paying anything between 0 and 45% more in tax on all the money going into your pension whoever pays it. That isn’t an incentive , it’s a tax grab and John is actually describing the T in TEE.

The incentive is that the taxman will then pay back this money into your pension at a flat-rate of 30% meaning that  (unless everyone’s salaries are jiggled about) you actually get 30% more into your pension than you did before.

But of course everyone’s salaries would have to be jiggled about because people would object to having reduced take homes.

David is saying that this would be a “Sales pitch” played on the British public designed to dress mutton up as lamb.

David is of a view that you either stick with what we’ve got (his favoured option) or move to a full TEE system (which so far only I have advocated).

It is of course extremely unkind on John to suggest he has anything in common with Ros Altmann and David should be censored for pressing the nuclear button.

What David is doing, is showing what John’s approach actually does. It gives the Treasury a lever to regulate the loss to the revenue from pension incentives by allowing it to raise or lower the 30% figure. 35% makes us all happy, 25% makes us sad.

And of course HMRC still get their pound of flesh when we retire (at least 75% of it.

What John is describing could be a transitional arrangement to TET, David’s summary point

So John Ralfe is much closer to TEE than he’d like us to think..

If anyone has read my blogs on all this, they’ll know I am much closer to John (and Ros’) position than John would like to think. Paying flat rate incentives is just a way of making TET acceptable and to get to TEE, you just reduce the incentive and give more tax at the back end.

Where Ros Altmann falls out with me, is that I don’t have such a problem with this as she does. She tells me that this would mean the end of pensions with everyone cashing out day one, I say that the money comes out tax free – but only if it comes out as a pension.

Where I differ from David Robbins  (and where I agree with just about everyone else) is that I don’t think the current EET (with NI relief on the T) is just or sustainable. It is not directing all this lost tax-revenue at those who need incentivising but at those who don’t.

Which leads me back to the start of the conversation and the pacific Darren Philp. Surely he is right to take up Andy Young’s challenge to Tom McPhail

As Darren says, there is no easy – publicly acceptable – answer to the issues around pension tax-relief. I like Darren’s approach and think the best way for the Treasury would be to model what would happen using EET, TEE and John’s incentivised TET with the benchmark being getting everyone to say 75% of the Retirement Living Wage.

If Gareth Morgan is right and 50% of deemed pension income comes from the tax system, then the model is going to have to be comprehensive and include all the costs of later life, including the impact of not charging NI,  the components of UC, the State Pension and of course the strain on the NHS and social care of an ageing demographic.

I’m not one to sympathise with the Treasury, but that’s a pretty big model!



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 More argy-bargy in pension’s tax-trenches

  1. Robert Reid says:

    Actually the man yo first propose TEE was Peter Lilley and it falter because of transition issues

  2. Peter Tompkins says:

    Quite an interesting general debate but I can’t see what political forces are likely to shape any emerging proposals or compromises. I do think that NI reform is pretty urgent – it should be consolidated into tax.

    By the way I didn’t realise that The Times now alters letters without asking permission. I found small changes to the letter I wrote on that spat which I think they once used to check with us before printing.

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