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Ros Altmann hits out at ‘pensions as Isas’ plans

Altmann-Ros-2010-700x450.jpg

Pensions minister Ros Altmann has clashed with the Treasury after it floated plans to tax pensions like Isas, saying such a move would be a “big mistake”.

Last week the Government launched a wide-ranging consultation on reforming the pension tax relief system.

One of the ideas proposed is moving from the current exempt-exempt-taxed model, where pension contributions are exempt from income tax, to an taxed-exempt-exempt system mirroring Isas.

Chancellor George Osborne said: “Pensions could be like Isas – you pay in from taxed income and it is tax-free when you take it out and in between it receives a top-up from the Government.”

But speaking to Money Marketing, Altmann says: “Certainly the current system would be better than just turning pensions into Isas with no lock-in to help people save the money through retirement.

“Letting them take the money out tax-free would be a big mistake.”

The pensions minister also appears to favour a top-up or bonus structure to encourage savers to lock their money away in pensions.

She says: “Tax relief is a regressive, unfair incentive for many people and it’s also very expensive. A top-up would be easier to understand.”

In April a Conservative briefing note revealed the party’s plans to raise the inheritance tax threshold to £1m, paying for it with a new tapered annual allowance.

The note promised the Tories “will not propose any further changes to the system during the next Parliament”.

The Chancellor confirmed the changes to the annual allowance in the summer Budget but also said he was “open to further radical change”.

The consultation, which closes in September, also leaves open the possibility of retaining the current systems and “options in between”.

There is growing industry support for a flat rate of tax relief that would redistribute incentives to the lower paid and save the Government money. Former pensions minister Steve Webb promoted the idea during his term of office.

Relief on income tax and National Insurance contributions totalled nearly £50bn in 2013/14.

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Christine Brightwell 16th July 2015 at 12:04 pm

    Go Ros. And why has the People’s Pension advert got a big black cloud right in the middle of the picture? Is there something they need to tell us?

  2. I would find all this more acceptable if those senior in government and parliament were getting the same deal. One suspects however that they will receive tax free pensions when they retire without having been taxed on the hidden tax free benefits of belonging to a defined benefit scheme.
    The solution is for MPs to be put on defined contribution schemes like most other people are. Then we might get better scrutiny.

  3. Seems that Ros is giving mixed messages. She is against people taking money out of the pensions (tax free). Good for you!

    But on the other hand she seems to be a keen supporter of these freedoms (25% tax free, the rest taxed). So please explain the apparent anomaly.

    As for tax relief, we already have a top up system. You pay in £10 and get credited with £12.50 – how hard is that to understand? Higher rate taxpayers get a little more – why is that unfair – after all 16% of the population pay 67% of all income tax. (40% & 45% Tax bands) and soon the highest earners will get bugger all. So I really don’t follow your beef on this either.

  4. The word “pension” should be reserved for the state pensions.

  5. Piers Clarkson 16th July 2015 at 2:27 pm

    Pension contributions

    For everyone employed a 5 and 5% matched contribution up to a maximum of the higher rate tax threshold from the first £ tax relief up to that level… or more simply salary exchange basis yes it saves the employer NI because they and the life companies are doing the work of the government departments…which could perhaps be reduced? AE can be scrapped it is compulsory.

    In an ideal world a gateway system introduced in order that people can have a “number” for pensions… lets call it an NI number (cool it all ready exists no doubling up there!) this allows employer deducted contributions to be paid into an account of the individuals choice not for them to be stuck with something dictated to them by their current employer. Stakeholder rules apply peeps can move when they want without penalty. They choose how much they want to pay, and default schemes are offered for the individual at sensible default charges to start with and advice can be sort if they are wanting to do something else or change what they started in. Advice can be paid for from the pension because that is the most cost effective way to do it.

    Tax relief is a flat basic rate on any contributions up to Higher rate threshold. No life time allowance.

    Pension funds and ISA’s grow tax free…that is tax free no Gordon Brown introduced sneaky taxes.

    Income from pensions only ever taxed at basic rate because that’s what contributions went in at.
    Pensions can be left to nominated beneficiaries without any tax to pay until they are 55 and take any income scrap rule changes at 75. Tax free cash can be taken at the rate that applies by the beneficiary upon reaching 55.

    I really think there needs to be a disconnect between pensions being seen as a pot of money the government thinks it can raid for tax purposes. This is money that individuals can save for their retirement and their families. Tax will be paid eventually on it, but over all it will reduce the dependency on the state in retirement.

    State pension is paid to people who need to come up to a minimum income for living not everyone… ie if people have family pensions passed down they don’t need help?

    Why don’t we come up with more ideas and then get involved in putting them forward to the powers that be?

    Piers

  6. Paul Standerwick 16th July 2015 at 3:00 pm

    Great to see that someone has noticed that Osbourne’s “incentive” for people to save more is poorly thought out. I’m really disappointed to see Ros (appently if not overtly) go after higher rate tax relief. I have never understood why people see this as unfair. If it is unfair, surely then logic would dictate it is also unfair that these people pay a higher rate of tax….? The idea is that you can save from gross income, why should it be the case that some should be entitled to this and others not?

  7. Targeting higher rate taxpayers is a tactic of the party of envy – Labour. The HRTPs need to be incentivised to be start business in order to employ and pay the very people who have the biggest problem with this! I would have thought the Tories were more supportive of HRTPs.

    The current pension tax relief regime should be left as is as it’s a way of deferring taxation into the future; it prevents incumbent governments’ profligacy – but with the current perilous state of the UK’s finances Osbourne is looking for any way possible to cut the ‘G’ part of the GDP equation. So much for Keynesian economics!

  8. Gavin Fielding 16th July 2015 at 7:11 pm

    Dan, there are a lot more higher rate taxpayers than there should be who have been dragged in through fiscal drag by not increasing the threshold, index linked it should be around £50,000 rather than £32k. Hence policeman, teachers, paramedics and so on can fall into HRT. To be fair Osborne did increase the threshold. The trouble with flat rate of tax relief is that it is by definition disconnected from actual tax rates, so a future government would probably lower relief if income tax rates fell, but would not increase relief if tax rates went up. That is how pension tax relief will be abolished, value will be gradually whittled away, echoes of MIRAS.

  9. I seriously hope that the smoke and mirrors of ‘flexibility’ doesn’t fool people and they realise that this about a further tax grab on those working now.

    Once again a Government is trying to introduce changes to pensions that will only benefit those close to or at retirement; don’t want to upset the grey vote do we old chap!

  10. If we are going to be taxed at a higher rate then shouldn’t we be relieved at a higher rate as well? but that is all party politics anyway and only tinkers with the retirement problem.

    Also I would like to know to on what basis Ros is against allowing people savings pots that they can use at anytime and not just in retirement- when they are still able to make big differences in their standard of living and not just when they are often too old to enjoy it fully. Has she asked the people, has she asked advisors – I just don’t know or understand the basis and would like to understand.

    Anyway my vote would go for tax efficient savings pots that can be accessed as required for key moments in life as well as retirement, we need to recognise and respect individual choice , responsibility and accountability better and if need be focus on educating more not controlling more and we need to lose the idea that these ‘savings pots’ don’t actually belong to the individuals that save into them because… Well just because they actually do.

    Also, can someone give Steve Webb a job in Pensions Minstry again as he seems to have some worthy views that are well worth considering and may help us all start thinking about the new ways of dealing with past problems and not keep harping back to the past.

  11. I started in 1989…now CFP and Charted….and every time there is a change of people at the Pension Party they seem to change the rules….and NOT always for the better. So no change there then.

  12. Let’s cut to the chase; the motivation for this consultation is increasing the tax take for the Government so that Mr Osborne can be seen to have reduced the deficit. It is nothing to do with the populace having greater options and flexibility in future years. As usual (particularly when it comes to pensions), it is politicians tinkering over the short term without consideration for the long term.

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