The final countdown @Pensionsgirlieblog 20 November
This week will be all about housekeeping. Phillip Hammond has to balance the UK budget and I have to speak to the boy-child about Jaffa Cakes. Not sure which, if either, is likely to be effective.
On Wednesday we will find out how the chancellor has decided to reform pensions. I know there are more fundamental issues such as tax relief and the wider economy, but if you’re a pension specialist this is the one that determines whether you’re up past midnight working it out (2014) or safely in the pub by 7.00pm (most other years).
We’re all hoping of course that he will largely leave it alone. So far all the tinkering has left us with the central EET (exempt-exempt-tax) of pension saving obscured but intact. Fundamentally there is an immediate reward for putting your money away and leaving it there, which is exactly what a long term retirement plan should do. As the government found with the lovely LISA if you turn this on its head it is necessary to add specific rules to enforce this behaviour and one has to wonder exactly who would benefit after all the hassle of reinventing the wheel.
On the other hand having to calculate the exact amount of reclaimable higher rate tax relief for a client this week, because his accountant couldn’t do it, has made me considerably more sympathetic towards the idea of a single rate of relief!
Much has also been said about the unfairness of higher rate tax payers getting a disproportionate amount of relief – ignoring the fact that they get this relief because they pay more in to the system in the first place. However if the government were to go down this route it should take the time to do it properly. The rate at which relief is set will be crucial in achieving the Treasury’s less than subtle objective of reducing the immediate pensions tax bill while protecting themselves against the cost of supporting a tidal wave of people approaching older age with limited savings.
There are some potential quick wins though. On the consumer front we already have the draft legislation for both the Pensions Advice Allowance and the ban on cold-calling, and the government could support the achievements of the dashboard working group by stating it’s intention to enforce participation by all pension schemes. From a taxation point I’d settle for a lower Annual Allowance if we could get rid of the hideous taper on relief and increasingly sneaky Lifetime Allowance but I’m not betting my best shoes on getting it.
If you’d like to read more the House of Commons helpfully published a Briefing Paper last month http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7505, reminding of the 3 options considered but not acted upon following the last consultation:
- Shift to a single rate of tax relief
- Moving to a TEE (taxed-exempt-exempt) system
- Retaining the current system with “some modifications”
On the Jaffa Cake front the moppet has taken to eating them in a way guaranteed to leave the maximum sticky mess on him, his clothes and basically anything else in the vicinity. First he nibbles round the edges, then he gnaws the biscuit off (with maximum crumbs) leaving the best bit to the end. Guaranteed to increase my laundry and put anyone else off their feed.
Seriously, eat the thing properly or just leave it alone.