Just a thought

In his April 22 Budget Mr Darling said he will scrap generous tax breaks on pension contributions for people earnings over £150,000 a year.

The Chancellor said this would cure an ‘anomaly’ under which a quarter of all pensions tax relief goes to the top to 1.5 per cent of earners.

Instead, the relief will be gradually tapered down to the same 20 per cent rate that most people get on their pension contributions, in a move that will yield the Treasury extra revenues.

I think it\’s generally accepted in leftie circles that one of the great problems with the British economy is our lack of long term investment funds. That is right, isn\’t it?

That everything\’s short term, no one thinks to the future, it\’s profit now and damn the long term?

But on the other hand, I can\’t really think of any form of investing which is more long term than pensions investing.

So we\’re going to cure the absence of long term investment funds by taxing those who make long term investments more?

Either I\’ve misunderstood matters or there\’s a small slip in the logic in there.

3 thoughts on “Just a thought”

  1. And why are no lefties calling for the government not only to keep the tax relief, but actually match pension contributions, or double them? They’re so illogical…

  2. speaking as a lefty interested in such matters I can clear this up for you – you have misunderstood matters.

    the act of saving by the individual might be long-term, but that doesn’t mean that the capital is invested in a long-term way does it? it will typically be handed over to a fund manager who is probably judged by the pension fund on quarterly performance and will push that short-term pressure up the chain to the investee company.

    that’s why people – quite often but not always lefties – have ben trying to figure out ways to get pension funds to invest in a more long-term manner. for example I think Will Hutton suggested in The State We’re In that pension funds short award longer-term mandates than the current typical three-year ones. none of this depends one the tax treatment of a small minority of pension scheme members.

    so currently there’s nothing inherently long-term about the way pension fund assets are invested and as such your point, I humbly submit, does not stack up.

    for what it’s worth I don’t think that making pensions less attractive to high earners is a smart move either, because it will diminish the self-interest of directors in providing a company pension scheme. but that’s a different argument.

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