From today's FT:
Sir, I find the logic of the insurance industry (Pension tax change under fire, May 14) as unfathomable as an MP’s justification of their moat-cleaning expenses.
Can an industry that has routinely priced low and medium earners out of the private pension market really claim that reducing the tax relief for about 350,000 of the highest earners discourages pension saving?
Pension tax relief is one of the least progressive areas of the UK tax system. If industry bodies really wanted to use it to encourage saving they would advocate turning it on its head, introducing a flat rate of tax relief for all and offering additional incentives to basic rate taxpayers – by increasing government contributions to personal accounts and occupational schemes for example.
I’m sure that would do more to encourage saving among those of us without moats than allowing the highest earners to receive 50 per cent tax relief on their contributions instead of 20 per cent.
Naomi Cooke, National Pensions Officer, Wimbledon, London
What's not mentioned is that she is the National Pensions Officer for the trade union GMB. So she makes half a good point on the regressive nature of the tax break, but why not go one further and accept that any tax break for savings (however flat and however well-intentioned) is of necessity regressive?
By definition, it is only those with surplus income who can afford to put money away, so taking her argument to the logical conclusion, they ought to scrap the relief entirely and use the notional increase in revenues to cut the tax burden on lower earners, by increasing the personal allowance or cutting tax rates (or ideally, a bit of both).
And, in practice, the tax relief doesn't really help higher earners much either, so they really are being bribed with their own money.
Friday, 15 May 2009
Reader's letter of the day, sort of
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6 comments:
And she wants to add in redistribution by getting the government, that is taxpayers, to stump up for 'low earners', whatever they are.
L, agreed, that bit is twaddle as well.
It is surely simpler and better to take less from low earners in tax in the first place than it is to tax them so highly and then subsidise them afterwards by having extra taxes on higher earners.
Or have I missed something?
I always thought that the reason behind the tax break on pensions investments was that you pay tax on it when you take an annuity, so it's more a form of deferred income.
That being the case, you can see why people might not want to pay tax when they contribute to the pension plan and then again when they get it back...
MW. Yeah and riase the basic state pension using the 'citizens income' idea. No tax until you're earning £15,000 and then flat at 20% ish. Personally I'm up for 'tithes'. 10% Income Tax would work for me. No VAT or rates, all repaced with LVT. Sack or transfer to private business 75% of state (non) workers. Privatise schools, hospitals and doctors and hey presto - FREEDOM!!!
(Oh and of course it goes without saying - Oi, EU? Fuck off!)
Surplus income? What's that?
RA, that might have been the original reason, but if so it was complete bollocks - surely it's better to not give tax relief on the way in (=> lower tax rates and less misallocation of resources, so hurray) and not taxing capital value when you withdraw it and spend it?
A bit like paying money into the bank out of your net salary - there's no tax when you withdraw the capital amount and spend it. All nice and flexible and simple.
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