Moving the goalposts on pensions contributions

Goalposts moving? Photo credit: Flickr/duncan

It’s just over six months since the last change to allowable pension contributions, and as we’ve only had six changes in six years it’s not hard to understand why the popular press are predicting that (calling for?) pension contributions to be changed 1.

Let’s be clear on one thing; sticking £50,000 per annum in a pension is affluent prudence. It’s not tax avoidance for the ‘wealthy‘. The truly wealthy see the paltry £50,000 per annum as nothing other than a slightly more generous ISA. When you’re drawing a six or seven figure salary, or selling a business for an eight (or more) figure sum the £50,000 is an irrelevance (and the 10% entrepreneur’s relief which is available up to £10m is more generous anyway).

We need wealthier people to be pro-pensions; after all they’re the people running our businesses, and topically, implementing ‘Workplace Pensions’ – isn’t it hypocritical for them to be avoiding pensions whilst trying to get their underlings to join?

Also the economics make little sense: pensions are a tax deferral vehicle, and whilst there’s can be a potential benefit in deferring 40-60% tax to a time when you might only pay 20%; there’s a cost – inaccessibility, restrictions on withdrawals, and the ultimate threat of a pension dying with you (or a 55% recovery charge). Pensions are a tax deferral vehicle so reducing input now may increase HMRC’s tax take now; but it’ll will unquestionably reduce the pensions tax take in  the future. It also makes other forms of avoidance more appealing.  Despite the potentially draconian “General Anti-Avoidance Rule” there’s one form of avoidance that the truly wealthy will always be able to do: leave the UK for good.

For these reasons the Chancellor should leave pensions well alone.

1

Citywire: Why unfair pensions tax relief is a fair target

Mail: Wealthy savers targeted as Osborne considers cutting tax-relief on pension contributions above £30k
Telegraph: Fears grow about tax attack on pensions

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