Over the weekend, we have seen the first major change in the taxation of pensions since the pension freedoms were announced in the 2014 budget. I am not calling the pension freedom’s George Osborne’s, because Steve Webb is right to point out that they were consensual and achieved as part of a functioning alliance. Nevertheless, their impact has been largely beneficial to those people with the education and wealth to make use of them. They have not helped lesser educated , less wealthy people who now find themselves with the problem of a surfeit of savings and too little income.

The second major tax change has been like the first, liberation for the wealthy with little or no impact for the majority of the population. The abolition of the Lifetime Allowance (LTA), which is supposed to have happened on April 6th, means that those with significant pension wealth can now continue to accumulate without fear of penal taxation. It should be remembered that “penal is a relative term”

Imagine paying 98% tax on the drawdown of your pension wealth. “Penal” cut in , in 1974 on earnings above £8,000 pa, a mark both of inflation and of the diversification of taxes. We do not pay less tax since 1974 , we pay more tax differently (capital taxes such as VAT being the biggest counter-change).

The introduction of a tax on pension wealth (the LTA) and , to a lesser extent, the Annual allowance, were taxes limiting capital accumulation in pensions , introduced under the last Labour Government in 2006. The current Labour opposition, 17 years later, said it would repeal any abolition. There remains a political divide over Britain’s principal wealth tax.

But despite concerns from the tax office that it isn’t ready for the change, it has gone ahead and unlike almost all other pension reforms proposed in this parliament, it is not still being argued about. When the Treasury and HMRC make up their mind , they get on with it, what the DWP proposes, get consulted.

Together with the relaxation of the annual allowance, we are now in much the situation we were in prior to 2006, the fiscal drag of tax thresholds being frozen during the recent inflation means that tax is now, more than ever, a driver for pension saving, at least among the wealthy. I cannot say that this is progressive.

The  two progressive changes in  pension taxation also came in on April 6th. From now on, people on low incomes can get the promised Government incentive for saving into a workplace pension whatever system of pension administration their workplace pension is adopting. For the hundreds of thousands of low paid workers, paying into DB and DC plans, this means a rebate in 2025 of up to 25% of their pension contribution , paid to their bank accounts by HMRC. This will only be paid on application.

The second change is a limitation on a tax-perk that is targeted specifically at tax-payers.

The changes in the LTA include a cap on tax-free cash which can be drawn from approved pension. Unless there is residual protection from a protected life time allowance, tax free cash is capped at 25% of the 2023-24 annual allowance. So  sums above this amount will be taxed as income at the individual’s marginal rate (£1073,100). This will be subject to 100% fiscal drag, there is no proposal to review the cap.

Private pensions continue to be a rich man’s game

The changes have already led to a lot of work for and from financial advisers who have been able to maximise advantage from these changes for wealthy clients.

It would be well to remember the reason given by the Jeremy Hunt for the introduction of the change in LTA

This measure supports the government’s efforts to encourage inactive individuals to return to work, in particular those aged 50 and above, by delivering on the commitment to abolish the LTA. It therefore removes incentives to reduce hours or leave the labour market due to pension tax limits.

Will we see older people returning to the workforce, now that they can save more into their workplace pension. This seems unlikely. The reorganisation of wealth from one tax-wrapper to another, the peculiar pre-occupation of the wealth manager, is independent of work. The increased annual allowance, coupled with higher tax thresholds will enable capital to be moved from tax-exposed accounts to “pensions”, but the number of affluent savers in their fifties and sixties who make lifestyle changes to take advantage of a potential increase in drawdown “take-home”, looks minimal.

The LTA was a tax that earned HMRC relatively little, was expensive to police and its abolition was welcomed by the Conservative back-benchers who had stopped earlier tax-reforms.

It was for most Conservative voters a Labour tax abolished by a Conservative Government and it was a bad tax.

I agree it was a bad tax – it made pensions more complicated and drove long-term money into short-term accounts.

But the fact remains , that the final tax-year end of 14 years of Government, leaves pension taxation skewed in favour of those who have wealth and gives only a token to the poor. The system of private pension taxation remains a “rich man’s game” (gender bias intended).