Sunday, 6 January 2013

Pension Balls-UP

Ed, the demon barber of the left, Balls has a brilliant wheeze on how to finance his latest job creation scheme. Screw those who save for a pension and,just to make sure, screw the pensioners. His idea, which to be fair, is only an extension of current coalition policy, is to reduce pension relief for highest rate tax payers to 20k per annum. For those on defined benefit schemes that means that even small increases in annual earnings will result in huge tax bills. But, leaving that aside, the injustice here is that restricting pension relief means that pension saving will effectively come from taxed earnings, and the ultimate pension will be taxed as well. Pensions are simply deferred income, reinvested at a rather pathetic rate of return by pension fund managers who have always relied upon the presence of the tax shield to make the exercise worthwhile to the punter. What is happening is that the original income source will be taxed twice, once at the point of deferral and once at the point the fund is drawn upon by the pensioner. Already, higher earners are saying to employers 'pay me more and I will opt out of the pension scheme' - then investing their income to their best tax advantage elsewhere. That in the longer run does not seem to be a good idea. People need big incentives to save for a pension, most of us are not into deferred gratification, and this is one crazy way of bringing about a situation, in the not too distant future, of even more very poor pensioners.

No comments: