Ros Altmann
Well done Ros Altmann for having the balls to point out what is apparent to all of us, that the tax-payer is offering enormous incentives to companies and savers to build deferred pay for the future.
I wish I could have been at the meeting Ros had with the affable but very serious John Stapleton where she explained the following suggestion to the Treasury
The former pensions minister said that, as at least 25% of each pension fund originates from tax reliefs and 25% can be taken tax free, it would be justified for the government to require schemes to invest this in the UK.
Altmann explained: “The gross reliefs to UK pensions each year amount to over £70bn of taxpayer money. A quarter of all pension funds can be taken tax free and no National Insurance is paid on pension income.
“There is, therefore, a clear justification for government to require UK pension funds who receive these expensive reliefs, to invest at least 25% of each new contribution, into UK markets to help boost growth as the quid pro quo.”
You can hear the grinding of molars among the fiduciary brigade who consider tax relief a right.
Altmann added: “This is incentivisation rather than mandation. If trustees or managers don’t want the tax reliefs, they can invest 100% overseas, it is their choice.”
I have continual fallings out with Ros but not on this. I was quoted over the weekend in the Guardian asking a question when Rachel Reeves assumed the role of Chancellor
Getting on for a year ago I referred to statements made by Reeves as she assumed power
I see Rachel Reeves statement on July 8th that British pension funds should invest British as part of a global trend, including economies as diverse as Canada and Italy, to direct pension funds to invest domestically. The worry is the incontrovertible truth that American tech stocks have driven returns over the past five years to a point where British companies can seek private capital and/or list in America and get global rather than local reward. Indeed many companies that would have listed on AIM are now listed on the Nasdaq.
Against the prevailing wisdom that our pension fund money will heal the wounds of a bleeding stock-market is the experience of economies such as Japan and Korea that imposed controls on pensions requiring them to invest heavily in its country’s corporate debt, to the detriment of those who are now retiring.
I was then and am now against mandated contributions into Britain but I am also against the fiscal irresponsibility of the pension investment community who cannot see some balance here.
I love Ros Altmann’s wicked suggestion and I love John Stapleton’s low-key delivery of her suggestion.
If you have not considered this argument seriously, you clearly have your ears blocked to the nationalism of Reform and the revulsion of ordinary people that they are having to meet the £70bn tax loss from private pensions with winter fuel payments
But I don’t suppose winter fuel payments mean much to those in the private pension industry, why should they- they matter to people who don’t matter.
Since when does investment in gilts and corporate bonds not count as investment in the UK? In relation to corporate bonds (of all credit ratings), is everyone ignoring the fact that often this debt is issued to facilitate capital expenditure? Of course, it is tax efficient for a company to borrow to fund capital projects relative to issuing equity.
Why aren’t we talking about that too?
Ros’s idea is pouring oil on top of the wild fire caused by original policy flaw – UK schemes already have mandation through a funding code (and previously PPF levy rules) that encourages / coerces investment (wrong word, should say the ‘holding’ ) of gilts. “Low dependency” implies c50% of any portfolio held in gilts.
Ros is suggesting another market intervention to balance against the original sin and current distortion we’ve allowed to be created over gilts.
But, in principle she’s right s govt can place any restrictions it wants on the tax enhanced regime, and actually that’s why uk schemes quite uniquely like lambs to the slaughter hold such a massive proportion of UK gilts.
JH
The basic promise of NNT should not be changed
as this encourages individual provision of income beyond work.
The anomaly of the commencement lump sum is a strange concept.
Why should capital be given to anyone particularly those with inadequate income provision beyond work?
it could be restructured to invest in a purchase life annuity
which is index linked and on two lives or simply added to the pool used to buy an income for life. Drawdown for those who take advice.
Annuities could be provided by government in competition
with private enterprise. I am sure the debt management office
would be grateful.
Now that IHT is to apply (2027) gifting out of normal expenditure would
encourage orderly transfer of capital to a generation that cannot accumulate
at the same rate as current pension recipients. HMRC would be delighted with the extra revenue to pay down some of the debt currently on track for 3x GDP according to the OBR.
I think the fundamental issue is do we consider occupational pensions to be an investment vehicle, or alternatively with their origins in DB as deferred remuneration for an employee’s service towards which the employee as well as the employer makes a contribution. This would apply to DC as well as DB or are DC pensions thought about purely as a tax relieved savings vehicle. If so, are they then just a form of super ISA, albeit one that can only be drawn on after a minimum age?
I very much doubt Baroness Altmann was suggesting employer’s should loose their tax relief on their contributions based on how the employee subsequently chooses to invest their pension pot. The noise and the adverse effect on the UK economy would far outstrip that of the NI rise. After all the deferred remuneration is still subject to tax, but on receipt. Hence the justification for IHT on unused pension pots.
We appear to be focusing on the vehicles used rather than the fundamental objective.
I would suggest that it is not binary but both deferred remuneration and the vehicle to hold the sums deposited
Identifying who has the risk and who can carry the risk should be the debate
It seems that currently the party with least risk capacity owns the risk as well
The £70 billion “give-away” is no such thing. The tax position is one of deferment – Pensioners pay taxes on their retirement incomes, which are generated by their savings and the investment returns on those. With state pension now within a whisker of the level of the personal allowance, the tax from those retirement incomes is far larger than that foregone today. Even the 25% tax free “lump sum” does not reduce that income or the tax take materially – it is just 1.12% per annum of the original investment. If few schemes have managed less than 5% returns over these horizons, we can see the scale of the increase in taxable incomes – it rises (in total)from £100 today to £324 in retirement.
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