Ros Altmann had a cracking go at us the pension playpen and here’s how it went.
No holds held with some extraordinary tussles with Tom McPhail, a Rosalind two-step and some very intense conversation in the chat box.
This is not the reception if she’d presented to the anonymous hoards of Professional Pensions
No one commented on why they didn’t know!
The vast weight of feeling is against mandation of trustees to do anything and I think most of us came into the meeting with Baroness Ros Altmann thinking she meant mandation. I have worked with Altmann on the net pay fiasco (which will be partially repaired under the title “Low Earners Pension Payment”). The tax authorities in the Treasury (HMRC) consider the point of taxis to encourage behaviour which will benefit everyone (including non-payers) which the “LEPT” is.
Ros Altmann’s argument at this Pension PlayPen is that tax-relief will be paid at its maximum where the Treasury considers tax-payers will get most benefit from the actions of those getting the relief.
I do wish that more people will listen to the nuance between mandating (demanding) and incentivising (with tax relief).
Here is Ros Altmann’s argument in writing
I suspect that many more people would support the Baroness’ nuanced approach through incentivisation than what is understood as mandation. Government would do well to take on her idea now before going further down the mandation route.
Altmann’s arguments are also live in Professional Pensions
The proposal is a nonsense, backed by the further nonsense that the contribution tax concession has a value of £70+ billion. The latest (to Q3 2024) ONS FSPS figures for contributions, repeat CONTRIBUTIONS, are: Private Sector DC £31.6 billion, Public sector DB and hybrid £16.4 billion and Private Sector DB £5.8 billion – so a total of £53.8 billion.
Say an average tax relief of 20% then figure is £10.1 billion
Add also NIC relief at, say, 20%, another £10.1 billion
For completeness, we should also consider the taxable income paid by pensioners in a year: Public sector DB etc – £20.3 billion, Private DC – £4 billion and Private DB – £54.1 billion – a total of £78.4 billion (yes pensions have a negative net cash flow pre investment income.)
If Ros is seriously proposing pensions should exist in a TET (Tax, Exempt, Tax) regime rather than the current EET, she needs to consider the extent to which this will reduce pensions savings and increase the cost of these lowered savings and retirement provisions on the state (Pensions are incentivised to achieve that lowering of state costs). Also if we see the State remove this concession, it would make sense to invest our post tax savings overseas, since if Government has changed the taxation of contributions in this way, it can only be a matter of time before they also tax the accrual of savings over the term of the savings fund – a TTT regime.
Functionally, there is no difference between this proposal and mandation. Mandation simply says that if you don’t do this, I will penalise you. This says if you don’t do this, I will penalise you.
Who settles the investment policy of the pension scheme? – the Trustees.
What are the Trustees’ duties? – To secure the best outcome for the Members using the assets and contributions received (after any tax deducted)
To whom are the Trustees responsible? – The Members (at least notionally)
Who has chosen which pension scheme the contributions are paid into? – the Employer in a previous period (DWP 2024 survey showed virtually no employers had changed pension schemes in the past 5 years and 80% did not know how to do so).
Who pays the tax (or not) on the contributions? – the Members and/or the Employer.
Who determines whether the contributions are taxable or not? – the Government.
The only way the proposal would work would be if the Government restricted tax exempt contributions to those paid into an “approved” pension scheme, which would have to be one which guaranteed 25% of its assets were held in UK investments. There would then have to be further restrictions on transfers out from such “approved” pension schemes to to other arrangements (including SIPPs and insurance contracts) which did not meet the UK investment criteria. Otherwise “lifecycle” type models would develop which saw short term investment in UK compliant arrangements followed by transfers to investment return maximising products.
is this likely to meet the aims of the proposal without mandation? – Make up your own mind.
Ros’s taxation of contributions would actually be double taxation of those, as they are already taxed when received as pensions by members.