Any changes to pensions taxation must be deliberate, planned and controlled, with a clear end objective in mind, says Richard Butcher
The other Sunday I took the dog for a walk as I do every Sunday, although this was an unusual one in three respects.
Firstly, we left the house at 5:50am - an indecent time for the weekend. Secondly, I took a flask with me. Thirdly, while out, I sat sipping coffee watching, from several fields away, as the three remaining cooling towers of Didcot power station came crashing down.
They didn't just come crashing down, of course; it was deliberate, planned and controlled. The end objective was to continue to clear the site in a safe way with a view to future development. It wasn't quite without hitch - they blew a nearby junction box and we went without power for an hour, but it was pretty close.
There's been much talk recently about the tax structure applied to pension saving. The prime minister promised to fix the NHS doctors' "taper tantrum" (with the knock-on effect that the heads of both the fire service and the army pointed out they have the same issue) and this led to the chancellor ruminating publically about simplified tax structures.
The taper issue and his ruminations both, in turn, increased the volume of social media space being devoted to the pension tax "relief" debate.
This is a really complex debate. For a start, it's a complex subject (hence the debate!) but that complexity creates risks whether or not change is made.
There's the complexity of the interplay between defined benefit and defined contribution - nominally the same but actually different - and then there's the problem of deficit repair contributions. Changing all of this creates risk.
There's the complexity of all of the various measures used to limit "relief" - the lifetime allowance (including the personal lifetime allowances that are protected), the annual allowance (and its various levels depending on all sorts of things including whether certain benefits have been drawn) and the devilishly, deviously complex taper. It was all so much simpler back in 2006!
It's a highly emotive subject. Should we, say, relax the taper when it's only the highly paid that suffer it (potentially yes, if it affects the NHS but no if it affects a private sector employer) while there are so many without an adequate pension.
It's not understood. The original intention with the tax structure was to encourage pension saving. Yet many people don't even know they get relief and it goes without saying almost none of them understand it (even if they work in the pensions industry!).
And, it's not even tax relief! Apart from the component that relates to the pension commencement lump sum, it's tax deferral. "We'll not tax your contributions until you take them out of the pension scheme."
So it's complicated. Add to that that the proportion of UK elderly people living in severe poverty has increased fivefold in the last 30 years (as found by Pension Reforms and Old Age Inequalities in Europe) and it's clear that, even if they want to reform, there is little overall space for them to do so.
All of this could easily be enough to put any well-meaning chancellor off, which, I think most of us agree, would be a shame because clearly this mess does need clearing up. We are not getting the most bang for our buck when it comes to tax deferral.
But there is an answer.
They government simply needs to be deliberate, planned and controlled. They need to know what end objective they wish to achieve and to progress in a safe way with a view to the future. It may not go without hitch but they should be able to avoid bringing the whole edifice of pension planning crashing down.
Richard Butcher is managing director at PTL
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