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Friday, 22 January 2016

Friday, January 22, 2016 Posted by Hari 2 comments Labels: , , , ,
Posted by Hari on Friday, January 22, 2016 with 2 comments | Labels: , , , ,

KJ, Chris and Fee come to terms with it all...

SOURCE GUARDIAN: Pension taxes are 'milch cow' for chancellor, says IFS head
George Osborne is using pension taxes as a “milch cow” to pay off the deficit, the head of the Institute for Fiscal Studies has said. The chancellor is expected to announce the results of a Treasury inquiry into tax on pensions in the budget on 16 March. Among the changes being considered is the replacement of variable tax relief on pension contributions with a single, flat-rate of between 25% and 33%, which would cause high earners to lose some of their rebates. Paul Johnson, director of the leading independent thinktank the IFS, said: “The tax regime has been changed and changed again as pension savings have proved something of a milch cow for the current chancellor. “By reducing the amount that can be put in a pension free of tax in any one year and the maximum size of the accumulated pot, he has increased tax revenues by more than £5bn a year.” Johnson said changes to pensions tax relief could cause “the implicit contract at the heart of our pension system [to] buckle under the pressure”. “Governments of all stripes have recognised that widespread access to good private pensions is an essential part of the implicit deal with the voter — we won’t pay you much of a state pension, but we will make sure you have the chance to save for yourself,” wrote Johnson in the Times. “And at the heart of that deal has been the tax treatment of private pensions. It should go without saying that nobody would tie up hundreds of thousands of pounds in a pension, which they can’t access for decades, if there weren’t some benefit for doing so compared to saving in some other way. That benefit is tax relief.” Former Conservative leadership hopeful David Davis told the Times that such a move would deter people from providing a full state pension for themselves. “It’s problematic because the pension industry used to be the jewel in the economic crown when it comes to having a population looking after themselves.”

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2 comments:

  1. RE:Possible Changes to Pension Tax Relief Jan 2016 (by @HornyToed)

    Proposal seems to be to use composite rate of say 25%/33% for Pensions Tax relief instead of current use of Marginal Tax Rate (20,40 or 45)

    IFS seems to oppose change.

    I think Pensions Tax Relief (PTR) should be substantially reduced but not in this way.

    1. We are currently BORROWING £70bn pa ie deficit. While borrowing to invest in infrastructure (which will give a higher return than interest rate paid) often makes sense, borrowing for day to day expenditure indefinitely, does not.

    2. £50bn (including NI losses, HMRC & CPS figs) of deficit is to pay for the well paid to have their pensions funds topped up with tax-relief. Surely this is grotesquely unethical while support for poor is being cut?

    3. Much of the cost of PTR does NOT end up in pension fund anyway, but goes in commissions, charges, fees which are largely ignored because the PTR SUBSIDY distracts customers and obfuscates the pension savings purchase process, effectively removing real competition from the market place.

    4. The subsidy thru PTR is, therefore, effectively a govt. hand-out to the bloated, inefficient, uncompetitive financial services sector to the tune of £50bn pa. If it were substantially reduced, they would HAVE to create much leaner savings mechanisms to provide for retirement - with more flexibility and lower charges.

    5. This would reduce the impact of PTR cuts on final pension funds.

    6. In addition, as deficit is reduced and we start to pay off the debt, UK interest payments would drop - could facilitate tax cuts enabling those who choose to, to save more for a pension.

    7. In short- PTR mainly benefits the Financial Services Sector & NOT the saver, or the taxpayer.

    8. However, it DOES make sens for a govt to encourage ppl to save for retirement but should be highly targeted at low-mid incomes where propensity to save is lower, than the current PTR of which at least 70% of benefit goes
    to higher paid.

    9. Suggestion would be to restrict savings to £5k pa (EE and ER) with PTR on top at marginal rate. Allow backdating for several yrs (7) for those who have not utilised.

    10. I think keeping Marg Rate Tax is fair as saver MAY have to pay tax at that rate when retire.

    11. There would be -ve aspects in terms of job losses or salary cuts in Fin Servs BUT if we don't subsidise steel, coal, ships etc etc why should financial sector be propped-up?









    ReplyDelete
    Replies
    1. Yes, I agree that the starting point for pension reform is to put an end to those outrageous and unjustified pension fees. Up to 50% of your pension savings are lost in bank fees and charges. We've been saying this for ages. See http://www.blog.rippedoffbritons.com/2011/10/britains-predatory-companies-gorging-on.html

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