Sunday, 2 December 2012

How can you lose what you never had?

Emailed in by Bob E, from The Telegraph:

George Osborne is to launch a raid on the pensions of Britain’s wealthiest savers this week as he delivers a downbeat autumn statement

The Chancellor is expected to lower once again the annual limit of tax relief that can be claimed on pension contributions in a move which could bring in between £600 million and £1.8 billion.

Yup, under Gordon "The City's Friend" Brown, the upper limit on tax-relievable contributions was increased from a % of your earnings to a ludicrous £255,000 a year, meaning that a higher rate taxpayer could claim more income tax/NIC relief in a single year than most people receive in State Pension for the whole of their retirement. Even Labour realised that they had gone too far, and spent the last couple of years gradually reducing the value of the relief each year in new and convoluted ways which few people ever really understood. By the time the experts had worked out what the newest rules were, it was time for a new set thereof.

The whole thing had turned into a complete mess, and the Tories (bless them) did away with most of the restrictions and simply set the upper limit for tax-relievable contributions at £50,000 in any one year (only the basis is not the normal 5 April tax year, it is a "Pension Input Period", which is slightly different).

And now the Tories are hinting that this limit might be reduced to £40,000 or £30,000 a year. The more or less complete tax exemption for income and gains earned on assets in your pension fund is entirely unaffected by this of course, and there is no suggestion of any sort of actual "raid" on those assets themselves.

Now, as Bob E points out, this is not a "raid", is it? Your existing pension fund assets and the tax exemption for existing pension fund assets are entirely unaffected, all it means is that the future tax-break for future contributions will be slightly less generous.
Further, as Bob E also points out, the article is actually about something else entirely:

Lib Dems had this weekend given up hope of the statement including any form of new property tax on the wealthiest homes - such as a mansion tax on properties worth £2 million or more, or new council tax bands kicking at current values of £1 million or more.

The decision means a win for a group of senior Conservative ministers who strongly opposed the Lib Dem suggestion. It is understood David Cameron also came out firmly on what he saw as a move which would be extremely unpopular in Conservative-voting heartlands in the south of England, where property prices are highest.

One government source said: “A property tax is complicated. You would have to order a revaluation of properties for council tax. That would be cumbersome, take a long time and be deeply unpopular. Moving again on pension relief is far more straight-forward.”

Yes of course it will be unpopular with some people (low earners in expensive homes and their heirs), but the rest of that is all good old-fashioned outright lies (doing the revaluations would be quick and simple). But the restriction on tax relief for pension contributions will also be unpopular, just with a slightly different group of people (high earners in whatever value homes, even though the real losers are going to be the pensions companies, who cream off all the tax relief as commissions anyway).

And there was you thinking that the Tories are on the side of high earners! Bollocks! They are on the side of people who own expensive homes, full stop, and the more of them you own, the better.


Bayard said...

"And there was you thinking that the Tories are on the side of high earners! Bollocks!"

No, I think that the Tories are on the side of the high earners, but they have to look forward to the next election, so the high earners will now have to suffer a little bit, because, although they are influential, they are few and, because of this pesky thing called universal suffrage, they won't get the Tories re-elected. If the Tories get in next time, it will be back to wealthare again.

Mark Wadsworth said...

B, if it were down to straight electoral majorities, replacing the whole shebang with LVT would demonstrably make 2/3 of people better off overnight, the other 1/3 would also end up better off, but that would take a year or two to filter through.

If you want to double-up and go for the "envious" vote, you could have higher rate income tax on incomes over £xx,000 as well, to further reduce the tax bills on the lower two-thirds.

Lola said...

I am sick to death with all these changes in pensions rules - justified in the name of simplification which is just, well, lies. My peer group love it as it gives them something to play with. But really what a waste of your life - figuring out insanely complex bureaucratic rules. Scrap the whole bloody lot. Cap annual contributions at the same as the annual income tax allowance and scrap higher rate relief.

Or better yet, scrap the whole bloody shebang and introduce LVT / CP - i.e. no income tax to relieve.

Mark Wadsworth said...

L, amen to that.

"Or better yet, scrap the whole bloody shebang and introduce LVT / CP - i.e. no income tax to relieve."

Correct, but even a halfway house would be enough. let's say we collect half of all taxes in LVT and the other half with flat income tax of (say) 20% but no higher rate income tax or NIC or VAT on top.

That way there would be no tax arbitrage. Instead of 40% plus 12% + 13.8% relief on the way in, 20% tax on the way out; it would be 20% on the way in, 20% on the way out.

As we all well know, basic rate taxpayers hardly pay anything into pensions because the relief on the way in is barely more than the tax on the way out + fees and commissions.

So the problem would largely solve itself, even if relief were on unlimited amounts.

Lola said...

MW re your penultimate paragraph - correct. But you try telling both ones clients who've been brainwashed, and your peer group, ditto, that....

But, at least customers doe eventually get it, peer group don't.

Lola said...

PS. Did an exercise on EIS and VCT schemes for customer. It was easy to see that all the tax relief was going straight through to the scheme operators..

James Higham said...

George Osborne is to launch a raid on the pensions of Britain’s wealthiest savers this week as he delivers a downbeat autumn statement

Showing him to be the leftist he is.

Mark Wadsworth said...

L, correct. That is why we accountants love EIS and VCT :-)

JH, I'm no fan of Osborne, but it's simply not a "raid" is it?

If your employer says "Sorry, we won't be paying an extra contribution into your pension fund next year" well that's a bit of a disappointment but does not affect the value of your existing savings, does it?

That's not a "raid" on your pension fund, and neither is the government saying "The amount of tax rebate we will chip into your pension fund next year will be lower".

For that matter, G Brown's much-vaunted "raid" was not a "raid" either.