Monday, 2 November 2015

Please don't take away our subsidies! We'll be straight out of business!

From The Evening Standard:

Cash-strapped Chancellors should not be given the temptation to take two helpings of tax from pension savings, the boss of the UK’s biggest mutual life and pensions firm, Royal London, has warned.

Chief executive Phil Loney spoke out on the Treasury’s review of pension tax incentives unveiled by Chancellor George Osborne in July’s Budget.

One of the options being considered is a reversal of the current regime — where pension contributions are tax free with tax deducted on retirement — to a system where contributions are taxed but payouts in retirement are tax free.

But Loney says the potential change — alongside reducing the size of pension pots — hinges on future Chancellors sticking to their promises. “Nobody should be asked to save for 30-plus years without absolute certainty that savings made from their income will not be taxed twice. The public will not trust future cash-strapped governments to honour any current promise of a tax-free ISA-style income in retirement.”

Wel of course they won't! But in the absence of the supposed tax breaks, nobody in his right mind would save into formal 'pension' arrangement in the first place, they would just build up cash, buy shares (presumably in an ISA*) or get into buy-to-let**. Even if they were 100% certain that withdrawals of saved up capital from the fund would not be taxed (a second time) in future, a formal pension scheme is hugely inflexible and suffers colossal charges.

So basically, without the tax breaks (which are all siphoned off by the pensions companies, leaving the saver no better off that if he had saved up outside a pension scheme), the whole pensions 'industry' will shrivel up and die within months.

*With ISAs, there is always the risk that the income and CGT reliefs will be withdrawn, but it is nigh inconceivable that the principal amount will be taxed, seeing as it was saved up out of post-tax income.

** With buy-to-let, there is always the risk that a Chancellor will reduce the tax breaks - a Labour Chancellor might do in the interests of fairness, redistribution or simply 'bashing the rich', and a Tory chancellor might do it because he knows that tenants don't vote Tory so he might find it expeditious to budge a few landlords into selling up to sitting tenants. Oh, a Tory chancellor just did, and presumably for exactly that reason. But it is again nigh inconceivable that the there would ever be a tax charge on the principal amount.


Bayard said...

"But it is again nigh inconceivable that the there would ever be a tax charge on the principal amount."

Sadly it is true that the introduction of LVT is "nigh inconceivable".