RSS feedsWhen Alistair Darling announced in the Budget that he would be depriving those earning £150,000 or more of certain tax advantages associated with pension contributions he said, by way of justification: ‘It is only right that those who caused the downturn should bear more of the costs.’
On one level, this was simply playing to the gallery, since even Darling has to know that not every high earner in Britain is a banker. On another level, it exposed the fact that the move was pure political expediency and an attempt to milk the public furore over the outlandish pension accorded to former Royal
Bank of Scotland chief Sir Fred Goodwin. What many missed is that a pension on this scale requires a pot far above the 2009/10 £1.75m lifetime limit and is, therefore, wildly tax inefficient. As such, it would generate tremendous revenue for the chancellor in punitive taxes. In a rational world, the chancellor would want every top executive to seek such a pension, since the additional taxes raised would ease the national debt.
It is almost impossible to find a pensions expert who has anything positive to say about Darling’s wheeze – other than the odd, honest admission that it plays wonderfully for the advisory community.
There is no doubt that it puts those who can most afford pensions advice deeply in need of that advice. In an economic downturn, Darling has tossed them a particularly tasty bone and given them a wonderful reason to tighten their links with the country’s richest people.
Gary Heynes, tax partner at Baker Tilly, points out that even higher earners need to be providing for their future and the proposed changes are ‘a huge disincentive’. He says the legislation introduces ‘huge complexity’ into the tax legislation.
KPMG pensions partner Lee Jagger says the government could find unintended consequences coming into play. At present, a range of normal corporate activities, including promoting executives and allowing early retirement, could trigger liabilities under the proposals.
One of the most critical points about the changes introduced by the Budget was made by Stephen Haddrill, director general of the Association of British Insurers, after the Budget. He warned that the chancellor ‘had sent an alarming message that [the government’s] pension promises can be easily broken.’
Anthony Harrington is a freelance writer
