Tax raid shows PM is at best ambivalent about pensions

[TrueBlueTerrier]

Tax raid shows Prime Minister is at best ambivalent about pensions

http://www.theherald.co.uk/business/new ... nsions.php" onclick="window.open(this.href);return false;

The brainy and busy Lord Turner, before he began sorting out the UK's broken financial system, was the man who spent three years sorting out the creaking pension system.

In late 2005, his epoch-making Pension Commissions report warned that by 2050 we would have 50% more over-65s with only half the number of working taxpayers to support them. Yet almost half the current workforce is saving little or nothing for retirement.

Since then, the savings ratio has collapsed still further, no doubt partly because property, cheer-led by Gordon Brown, became cast as the new pension.

The appointment of 14 different ministerial teams to run the pensions department since 1997 can't have helped.

"This merry-go-round speaks volumes about pensions and their importance on the political agenda," says Scottish Life's Steve Bee.

This week's tax raid on the pensions of the "rich" just adds to the impression that where pensions are concerned, the prime minister is at best ambivalent, at worst agnostic (except perhaps where his own platinum-plated income for life is concerned).

Turner's report, three years in the researching, concluded: "We do not therefore recommend a major reform to the overall system of tax relief in the near future, particularly given the major changes already planned for implementation in April 2006, which have entailed significant implementation complexity."

But now that complex framework of contribution ceilings, lifetime limits and annual allowances, hailed as a permanent structure, is to be hastily remodelled, supposedly because the Treasury has discovered that last year "individuals with income over £150,000 represented 1.5% of pensions savers, yet received a quarter of all tax relief on contributions (£6bn)". This amounted to an average of £27,000 per person compared with £1000 for basic rate taxpayers. The subsidy to higher-rate taxpayers is not disclosed, nor is the amount that will be saved from the £6bn. The industry has accused the government of "breaking its contract on tax relief" and "jeopardising the sensible savings plans of wealth creators".

But crucially, the supposed Robin Hood levy will not be recycled into pensions. As consultant Ros Altmann observes, "this is not about fairness, it's about raising money, fairness would mean using the revenue raised to help other people achieve better pensions".

Turner's core recommendation - increasing the basic state pension in line with earnings - was kicked into the long grass on the grounds of "affordability", and that was in the boom years.

His blueprint for a national workplace scheme with automatic enrolment was accepted, but shelved until 2012 so that a complex and unnecessary new pensions delivery authority' could be built from scratch.

Even these new personal accounts' are flawed by Brown's obsession with means-tested benefits, which will undermine the incentive to enrol for a significant proportion of the supposed low-income target group.

Of course, his notorious £5bn raid on company pension schemes in his first Budget was based on his confidence that we could all afford it, as he was about to abolish boom and bust.

Meanwhile Brown's real empathy for those who actually save for their own retirement was perhaps reflected in the shabby and shameful treatment of pensioners in the Financial Assistance Scheme and in Equitable Life. Brown was the shadowy string-puller of the government's stubborn defiance of High Court and parliamentary ombudsman judgments against it, yet has never defended its behaviour, despatching underlings to parliament to brazen it out.

The one success he can claim, the Pension Protection Fund, is now facing a huge upsurge in demand from failing companies in the recession - a stress test for which, rather like the government, it may not have been built.

The impression remains that for Brown over the past 12 years, the benefits of short-term spending have been far more important than the responsibility of long-term saving.