The new administration has indicated that capital gains tax hikes are on their way, along with income tax cuts and greater flexibility around annuitisation. But many details are undecided as they try to piece together a coherent set of economic policies.
One area where we require far more clarity is pensions. Before the election, the Tories and LibDems both promised an urgent review of Nest and the scheme will be scrutinised by Treasury officials looking to slash costs.
New pensions minister Steve Webb has previously expressed concern that Nest is likely to fail unless worries about the scheme’s interaction with state benefits are not addressed.
One obvious way to do this would be the introduction of a citizens’ pension. This has been a long-held LibDem policy although not a manifesto commitment due to the current economic climate. Given that a citizens’ pension is off the table, urgent clarification must be offered by Webb about how his past Nest concerns will be addressed.
The coalition is split on higher-rate pension tax relief, with the Tories opposing LibDem calls to scrap it. If it is kept, there is concern the £130,000 income level at which the relief becomes restricted will be lowered.
If encouraging an increase in long-term savings is a goal of this Government, then higher rate pension tax relief should be retained.
It is not simply a hand-out to the well off, it encourages a culture of saving and its removal may hit all employees of firms where the businessowner no longer sees the point of running a decent scheme. Its removal may also lead to double taxation of many people’s savings.
The Government should be empowering people to save more for their future, not building on Gordon Brown’s legacy of pension destruction.