Osborne’s budget alleviates worries over pensions tax relief
-Joanne Segars is chief executive at the National Association of Pension Funds. The opinions expressed are her own.-
Osborne delivered a tough and important budget, but one issue he didn’t really square up to was the UK’s woeful record on saving for retirement.
More discussion and policies will come soon – with the expected review of landmark pension reforms due for 2012, and with a new independent commission looking into the thorny issue of public sector pensions.
But one danger this Budget did nip in the bud was a move in the Finance Act 2010, pushed through by the previous government, which would have restricted pensions tax relief for those earning over 150,000 pounds.
We have long said that this policy was a disaster in the making. While we’re not against the principle that the highest earners should receive less tax relief, we were worried that the Act would have damaged the pensions of all working people, not just the well-off.
In short, the tax rates proposed in the Act would have encouraged the top brass to quit their workplace pension, thus eroding employer interest in those pensions. The rules would also have cost firms around 3 billion pounds to implement, and would have ensnared many middle managers with final salary pensions.
So it’s a relief that Osborne now recognises the concerns, and he indicated in the Budget that a viable solution could be a much simpler and more radical step, put forward by the NAPF, to reduce the amount that can be paid into a pension tax-free each year.
Currently that limit is 255,000 pounds. If it were to be lowered to 45,000 pounds then the Treasury would still be targeting higher earners, but those individuals would not be penalised for remaining in their workplace pension scheme.
The level at which this is set was not established in the budget, and will have to be ironed out shortly. Initial Treasury analysis suggests 30,000 pounds to 45,000 pounds. While the details remain unclear, the direction of travel is very encouraging.
Picture Credit: Chancellor George Osborne carries 19th-century finance minister William Ewart Gladstone’s old Budget box past 10 Downing Street, before delivering his first Budget to the House of Commons in London June 22, 2010. REUTERS/Andrew Winning