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Questions raised over Labour’s pension tax relief assumptions

John Lawson

Standard Life head of pensions policy John Lawson says the cost-saving calculations behind Labour’s proposed new pension tax relief restriction are flawed.

Shadow Chancellor Ed Balls wants the maximum relief offered to those earning over £150,000 lowered to 26 per cent.

The previous Labour administration planned to limit pension tax relief for people earning over £150,000, including pension contributions, to 20 per cent from April 2011.

Chancellor George Osborne instead cut the annual allowance from £255,000 to £50,000 and the lifetime allowance from £1.8m to £1.5m.

Balls claims Labour’s restrictions would have saved £4bn compared with the £2.4bn saving from reducing allowances. He says his new restriction would save another £1.6bn.

Lawson says Balls’ figures for the cost savings associated with Labour’s original plans do not account for Government, employer, employee and pension scheme costs totalling between £2bn and £3bn.

He adds the £20,000 cap on annual allowances for top-earners in 2009/10 and 2010/ 11 created pent-up demand to carry forward contributions and reduced the initial savings from the annual allowance cap.

Lawson says the £2.4bn saving will be nearer the Treasury’s estimated annual saving of £4.5bn in future years.

He says: “Labour’s inefficient plan was already discredited last time round and it looks like they are putting it back on the table. They do not seem to have been listening.”

Labour were unavailable for further comment.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Don’t think the ‘lifetime allowance’ is £1,500,000,000.
    Minor !!!!! detail I know.

  2. Why doesn’t Balls just give up and put himself out of our misery?

  3. no surprise here then. they lose respect every time they shoot from the hip.

    Halve the number of MPs to reduce the nonsense they spout

  4. Balls by name…..

  5. Labour get their sums wrong?


  6. boredoftheconstantchanges 15th March 2012 at 3:42 pm

    Just restrict the tax relief – and get on with it – death by 000’s cuts is painful and confusing to clients and advisers.
    Oh course the trade off should be as it wont cost the govt as much tax relief they can do away with the annual allowance and the lifetime limit and actually simplify pensions! – now there is a thought.

  7. What everyone is failing to appriciate is the lifetime tax senario.

    Yes Tax releif on the way in creates a pot of savings. However this pot is held firmly in the eye of the UK tax man. For most of the journey until the client retires it is invested in Companies via Shares/Bonds/Property all of which help grow the economy and create jobs which in turn creates tax revenue. ( Think QE but direct to business)

    At retirement yes a small allowance is available as tax free cash however the rest is taxed as income during the lifetime, again creating revenue, the income is spent in the eccomnomy creating jobs and growth, lastly as the person has self provided they are taking less state reliance.

    Death – This is the big one. After the journey 55% of the pot goes back to HMRC in the case of drawdown. The favorable treatment of annuity providers keeping the pot means corporation tax for companies who are effectively buying up the government debt book. ( reversing the effect of the QE)

    If you undue all of these it is a worse economy etc. etc. Nobody looks at the lifetime effect on the revenues & budgets instead headline grabbing short term thinking is all that is put in headlines.

    The £1.5M lifetime cap could secure less that a £80K annual pension without any future increases. No spouses benefits etc.

    Start putting these in place and you start getting down to £45,000 p.a. Not much different to your middle income civil servant pension benefit value.

    Do employer contributions count as 100% tax releif for the member? Thats a thought? In these cases all public sector employees get a much better deal than the rest of the population particularly the self employed and the private sector who take all the risk to generate tax receipts for the rest of society.

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