Osborne’s pension raid!!
Taxing the future to pay for the present!!!
The Chancellor’s raid on pension tax relief is “detrimental to economic growth” and a “tax on the future to pay for the present.
George Osborne announced in this afternoon’s Autumn Statement that the annual tax free limit will go from £50,000 to £40,000.
Lowering the maximum annual tax-exempt pension contribution to £40,000 from 2014/15 could discourage higher earners from spending, which would be detrimental to economic growth. Reducing pension wealth, which accounts for more than half the accumulated wealth of the UK’s better off households, could have far-reaching, unintended, negative implications.
In addition, Mr Osborne’s cash-grabbing raid does not only affect the super-rich. It will hit middle income earners who increase contributions to their pension pot later in life, as well as owners of enterprises, which are vital for the UK’s economic growth. High rates of personal tax are damaging to business as they reduce a company’s ability to grow, meaning lower job creation.
The reduction in the tax-free pension contribution allowance limit to £40,000 from £50,000 means that more workers on final salary schemes are likely to get a one-off tax charge if they get a pay rise.
Because of the way annual pension contributions are calculated for final salary schemes, someone with 20 years service in a 1/60th scheme are likely to be taxed on a portion of their pension contributions if they receive a pay rise in excess of £7,500.
Currently, with the tax relief threshold at £50,000, this would not be triggered unless you got a pay rise to the tune of £9,375, so that long-awaited promotion to management could bring with it an unexpected tax hit.
However, workers who get a pay rise will be able to avoid the one-off charge by deploying unused allowances from the previous three years.
The state needs to encourage Pensions in my opinion not discourage them. With an ageing population, the State will be increasingly unable to afford to care for older people in the way it has done in previous generations. This is why it is crucial to revitalise the UK’s savings culture.
Yet by attacking pension tax relief as he has done today, the Chancellor is once again dealing another hammer-blow to an important incentive to saving for retirement – which will deter people from prudently putting money aside for their old age and weaken pension funds. This will cost the country dearly in the future, especially with Britain’s looming care crisis, and will adversely impact individuals.
In short, pillaging pensions, as Mr Osborne has done in today’s Autumn Statement is, in many ways, taxing the future to pay for the present.
Nigel Green deVere Group
Blog written on 5th december