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George Osborne should react to Standard’s stats

Ever since the previous Government announced its proposals to restrict higher-rate pension tax relief in last year’s Budget, experts from across the industry have been united in their opposition to the plans.

A huge range of people who usually know what they are talking about, including providers, IFAs and lobby groups such as the National Association of Pension Funds, have called on the Government to introduce a more sensible relief cut- such as significantly lowering the annual allowance.

So far the endless lobbying has been fruitless with the previous administration unwilling to listen and the Tory opposition unwilling to commit to anything before coming to power. The LibDems were calling on higher-rate pension tax relief to be scrapped altogether.

In a range of interviews we conducted with Tory Shadow ministers such as Nigel Waterson and Mark Hoban they expressed their general disagreement with the new measures to slash relief for those earning over £130,000 but they refused to commit to fixing the mess. Helping higher earners was not a button politicians felt they needed to press too strongly in the run-up to the general election.

There were a few hopeful signs- Hoban did go as far as to suggest he would look at other options that would recoup the same amount of revenue for the Treasury. Industry experts suggest that cutting the annual allowance to £50,000 would raise the same amount of money, £3.6bn, as slashing the relief for those earning over £130,000.

During a Finance Bill debate in Parliament in April, Hoban warned about the costs and complexities of the new rules, saying: “we ought at this time to look very carefully at how they could be improved to make them easier for people to understand, easier to administer and cheaper to collect.”

But with the Treasury focused on its savage programme of cuts most people assumed that rolling back higher-rate pension tax changes would not be a priority.

However, the new estimates regarding the costs of implementing these changes, calculated by Standard Life, should make Chancellor George Osborne and the rest of his Treasury team sit up and take note.

Standard estimates the one off costs of introducing the changes to be £2.5bn, seven times higher than the Treasury estimates of £345m. It also estimates annual costs of £435m compared to Treasury estimates of £130m.

Standard says employees will be hit with £1.38bn of the initial bill, with the majority of this cost down to the financial advice they will need to take. Employers, pensions schemes and providers and the Government share the rest of the bill.

In contrast, Standard says reducing the annual allowance to £50,000 would cost £459m, plus £118m annually.

This extra burden, particularly on employees and employers, is something that should concern the Chancellor at a time when he is asking businesses and individuals to share the pain of the forthcoming cuts.

Many people have already articulated the reasons why the higher-rate restrictions are a bad idea from a financial planning perspective- such as the increased complexity, the potential for double taxation and disincentivising business owners from offering decent schemes.

Surely on the back of these new cost estimates, the option of reversing the planned restriction on those earning over £130,000 and instead cutting the annual allowance now becomes far more politically attractive as well.

Osborne could present this change in the upcoming emergency Budget as the new coalition Government sweeping away another complex piece of Labour meddling to the benefit of both individuals and businesses.

It would certainly be one popular announcement on a day when many unpopular decisions will be unveiled.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. After the LAUTRO ‘assumed expenses’ fiasco I will never have any faith in any numbers crunched by Standard Lamp.

  2. “Standard says employees will be hit with £1.38bn of the initial bill, with the majority of this cost down to the financial advice they will need to take.”

    Surely that’s a much needed boost for the financial services industry? LOL

  3. Incompetent Regulators Awards Team 9th June 2010 at 5:05 pm

    What must be understood as if you take incentives away from savings in pensions the likelihood is people will stop (as we have now) altogether. The message is wrong, just like CGT the argument against incrases is that people will not crystallise their gains and subsequantly the Treasury receives less tax!

    Lower the tax and more people will pay and will not go the avoiding route and for the illegal the evasion route!

    MPs must listen and learn.

  4. Alistair Blyth 9th June 2010 at 5:19 pm

    How on earth did Std Life arrive at £1.38bn? How many people in the UK earn over £130,000? It would take 1 Million all being charged £1,380 each to get to this figure. Or 100,000 at £13,800 a head? Either way, that’s a healthy chunk of VAT for Osbourne to look forward to!

  5. Government or at least their civil servants won;t be swayed by this type of cost impact analysis. Those against a measure will always seek to inflate the figure.

    A few years ago I was dealing with an HMG change and they worked out the cost of a tax change to industry by saying it would take about 2 hours max to rejig a spreadsheet, take contractor hours £50 an hour and multiply by firms affected and came up with a justifiable few thousand. In reality the cost was millions as the industry does not administer pensions et al on Exel spreadsheets even if HMG does!

  6. John Blackmore 9th June 2010 at 5:20 pm

    Those who pay higher rates of income tax don’t need incentives to save. I agree that the current position is unnecessarily complicated but this can easily be solved by not giving higher rate relief to anyone. £6 bn pa gets saved which could be used in far better ways.

  7. Think about how many of the talet that was at standard life and have jumped ship to other life offices and tell me that you trust these figures!

  8. The nation can no longer afford to subsidise the rich so pensions higher rate tax relief will need to go in the emergency Budget of 22nd June. No other European country gives HRT relief.

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