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L&G poll warning as pension sales halve

Legal & General has warned the major political parties against scrapping higher rate tax relief on pensions, claiming the looming restriction for top earners has already halved pension sales for the first quarter.

The Liberal Democrats have a manifesto pledge to limit tax relief on pension contributions to 20 per cent for everybody, irrespective of taxpaying rate.

L&G wealth & policy director Adrian Boulding warns Labour and the Conservatives against agreeing to this policy in the event of a hung Parliament.

He says pension sales through IFAs are likely to be 50 per cent down this quarter compared with the same period last year.

He says: “The Liberal Democrats want to do away with higher-rate tax relief altogether I hope the politicians look at the figures in terms of what has happened to pension sales since the restriction to tax relief for high-earners was announced.

“Sales in those income brackets have been significantly dented. The official figures have not been released yet but we expect new pensions being written by IFAs to have fallen by as much as 50 per cent in the first quarter, industrywide.

“That is a very big reduction. Whoever is in bed with the LibDems should say no to this because we can see the damage it has done to higher-earners and we do not want to see that repeated in the case of all 40 per cent taxpayers.”

Boulding also criticises Labour and the Tories for agreeing to link the basic state pension to earnings. Previously, the state pension was linked to the higher of earnings or prices, which is the LibDem policy. He says: “The main parties have overlooked a very important point and might find that in a few years there is another campaign to change the link back to prices.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Well, he would say that wouldn’t he. How about this as an alternative. Yes, pensions tax relief shoud be restricetd to basic rate relief, and releif should be given as pensions are deffered pay. But how about increasing the annual earnings allowance to about £12,000 (roughly the same as the minimum wage) and adopting flat income tax of say 25%, with a maximum annual amllowance for contributions?

    We are too wound up in our advantage and trying to satify the HNW end of the market that forget to look at such things the other way around.

    Doing what I suggest along with other smiplifications, scrapping RDR, scrapping the pensions tax that is the new universal and compulsory scheme would boost pension sales anyway. That and having a government that had even a vague idea as to how wealth was created and was responsible with our money, and with money itself.

  2. What next they will want to bring in a regulator that wants all IFA’s to charge clients fees and not take commission……………………Hmmm

  3. Have I missed something here?

    Surely it’s good news if disproportionately high levels of relief given to our richest citizens are reduced.

    We should be celebrating – the lower the tax relief that is given away to them the lower the tax rises the rest of us will need to face.

    If money is to be taken out of the economy it is better it is taken from richer people – any money in or out is subject to the multiplier effect that increases its value many times due to the fact it is spent many times over. The degree to which it is multiplied is dependent upon the propensity to consume of the recipients – and poorer people consume more of their income than richer people.

    Surprised L&G didn’t know that as its really only GCSE stuff…….

  4. Typical a well paid executive trying his best to save Higher Rate Tax Relief for his friends, whta next a multi millionnaire from a wealthy family trying to extend the IHT threshold.

    Seriously pension tax relief should be turned around. People should be encouraged to save, i think that tax relief should be at 100% until pension fund total a ceratin level then 80% and so until it tapers out completly.

    It is a scandal that the average pension fund reaching crystallisation is around £28,000 with the vast majority of this made up of protected rights.

  5. I’m afraid personal pension contributions for higher earner will be a thing of the past unless the decumulation taxation is looked at as well.

    Look at a £1 pension contribution for a higher rate tax payer (even ignoring the 50% bracket). £1 invested means £1.25 invested less 40% income tax deducted = £0.75 back.

    Perhaps pension income should be taxed as capital gains rather than income.

  6. There has to be an incentive to save. 20% on the in and potentially 40%/ 50% on the out makes no sense. Trapping capital in a restrictive environment to pay more tax when you stop working is barmy and I agree with L&G will lead to a reduction pension planning. Alternatives such as ISAs/ Collective portfolios (while CGT remains at 18%/ EIS/ VCT will all become the prefered choice for the wealthy together with that old favorite the good old offshore bond! For retirement planning pensions used to be first on the list….now possibly the last!

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