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Treasury threatens clampdown over pensions recycling abuse

The Treasury has threatened to clampdown on pensions recycling amid concerns the tax loophole could cost the Exchequer billions of pounds.

Under the new flexibilities announced in the March Budget, anyone aged 55 or over will be able to take their entire pension pot as cash from April next year.

The reforms create a tax loophole, however, as savers could use pension salary sacrifice to avoid paying employer and employee national insurance, as well as collecting tax relief on their contributions.

They will then be able to immediately withdraw the money from their pension pot, subject to marginal rates, without ever having paid NI or income tax.

The Treasury has already cut the annual allowance for tax-free pension saving from £40,000 to £10,000 for those who access their pot flexibly to reduce the risk of people using the reforms to cut their tax bill. However, industry estimates suggest £2bn could still be lost to the Exchequer as a result of people exploiting the loophole.

Responding to questions during a House of Commons Taxation of Pensions Bill committee session this morning, Treasury financial secretary David Gauke said: “The idea that we should have a zero annual allowance and say anyone who has made use of these flexibilities should no longer be able to contribute to a pension we think would be unfair on those people.

“We have sought to balance two competing objectives of fairness for those who have accessed their pension flexibly but wish to continue to contribute with fairness in ensuring this doesn’t create a tax loophole which is expensive to the general taxpayer.

“We will continue to monitor this and if we see evidence of abuse in this area we will take further action.”

He added: “It is clearly in the interests of the Treasury and the general taxpayer that this is not something that is exploited at rapid cost, in which case the balance would shift and the Government would look to take further action.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. In other words, get in quick before they shut the loophole?

  2. when does legitimate tax planning become abuse?! if they create loopholes, well informed (wealthy) people will exploit them! what a joke!

  3. Isn’t there a danger of a line being blurred? Not long ago, tax evasion and tax avoidance were seen as totally different. Now they have been lumped together.

    My concern would be that some will try and use the access to funds and ongoing modest contributions legitimately and others will look to exploit this. Will the line between the two get blurred and what will the consequences for those that thought they were acting in the spirit of the rules and find out later that the goalposts moved and then suffer tax consequences? Who would be at fault?

    Wouldn’t black and white clear guidance on this be better now, rather than a ”wait and see” approach to rewrite the rules later? HMRC are offering a 10, 000 pound contribution limit, if that is the offer then people will take it, just like people want to take the maximum ISA limits if they can.

    This is almost like putting cheese in a mousetrap- nice offer but take it at your own risk.

  4. Isn’t it about time they just got rid of NI all together ?

    Its unnecessary, complicated and can easily be made up via your tax coding, its like stupid car tax just put on the price of petrol (increase the tax on petrol) much fairer the more you use the roads more you pay.

  5. I agree with Christopher Lean and DH.

    I PLAY BY THE RULES. If the rules are continually changed by the referee, it’s not worth playing the game in addition as with the removal of the longstop i.e. Removal of a legal right putting us outside of the law without any discussion of it’s removal we are made outlaws (a very similar bit of “tainted chicanery” as parliament experienced on Monday with the European extradition warrant i.e. not on the table/ballot for discussion, but put through using tainted chicanery as anyone who has looked back at what the FSA were saying pre FSMA 2000 and what parliament said about the time limits were to mirror common law and then dropping the 15 year longstop without consultation and refusing to discuss it in any meaningful form ever since).
    And the 3 former major parties wonder why UKIP is getting so much support when the political elite use chicanery, smoke and mirrors against people who want to STAY within the RULES and LAW!!!

    I thought it was interesting watching the Remembrance day at the cenotaph to see that all the Royals have served their country in the Armed Forces while NONE of the ministers had any military service at all very similar with the F -pack system and all the quangocrats meetings about delivery of advice invariably not having one single active adviser present and even those who had experience advising like Rory Percival have been out of the advice sector for decades.

  6. Very good point Philip !

    Not wishing to go of topic but the last leader of a party who was in the armed forces I can think of, was Paddy Ashdown,
    Has G Osborne got a banking, pension, accounting, or any tax qualifications ? I wonder how he would fair with R03 ?

    I know these people have whole offices full of minions to advise them but are they just relying on some-one else’s say so ? and is this right ? personally I don’t think so !

  7. This isn’t necessarily about the wealthy, anyone aged 55 earning even a modest salary will be attracted to not paying employee and employer NI on £10k of salary having it redirected into pension and then being able to take it out again.

    This will become the standard remuneration recommendation by accountants to employers with employees over 55.

  8. Old news this isn’t a ‘new’ loophole created by changes to pension legislation.

    Salary sacrifice has been around for years and is a contractual agreement regarding the remuneration package between the employee and employer so I’d like to see them try and close this ‘loophole’.

  9. Its a pity that legislators have no foresight when formulating policy and law. It might be considered morally wrong to use these loopholes to in effect save tax on earnings, but if people are struggling to make ends meet and have an opportunity like this presented to them then most people would take advantage of it. The ability to do this for EVERYONE over the age of 55 who earns enough to take £10,000 salary exchange every tax year (and still remain above the minimum wage) is a disastrous loophole. I am not sure how this loophole could be closed without at the same time eliminating the possibility for genuine contributions to be made. Even if anyone over 55 who has ever taken anything other than tax free cash from their pension were forced to make personal contributions rather than sacrifice salary it would still be very hard to stop abuses. And I have to say that I think salary exchange is an entirely sensible way of incentivising both employees and employers to make pension contributions so I would not want to see this ended.

  10. @Sean – salary sacrifice is not the loophole Sean, its the ability to take the whole pension pot with only a marginal rate of tax payable that is the new loophole. Previously salary exchange would mean that 75% of the amount sacrificed would only be available as income at age 55, so this is a new loophole.

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