As we know the Sage of Ely was insistent that the pensions credit thingie for higher earners should be abolished. Because MOAR TAX!
Apparently it might not quite work out this way:
“In the short term fiscal changes such as the lifetime allowance cap at £1m will save it money, however in the longer term the package of various measures such as the pension freedoms, the increased Isa limits and the secondary annuity market will result in a worsening of public finances.
“Investors will simply substitute more tax advantaged products such as the Isa for the pensions where they fact the lifetime allowance cap.” The OBR’s analysis looked at a series of cuts to tax breaks on pensions savings for high earners since 2010, together with the impact of George Osborne’s new pension freedoms.
The Government has reduced the annual pension allowance, the amount people can put into their retirement pots before they have to pay tax, from £255,000 in 2010 to £40,000.
It has also cut the lifetime allowance from £1.8million to £1million today.
Over a million middle to high earners including teachers, doctors, lawyers and managers will have their retirement savings restricted as a result of the lower pensions lifetime allowance.
While the reforms will benefit the economy in the medium term because of increased tax, in the longer term there will be a cost to the taxpayer as people choose to invest their savings in alternative schemes, the report found.
The OBR said that by 2035 the Government’s policies will cost it £5billion a year in lost tax revenue.
It states: “In recent years, the Government has made a number of significant changes to the tax treatment of private pensions and savings and introduced a variety of government top-ups on specific savings products.
“In doing so, it has generally shifted incentives in a way that makes pensions saving less attractive – particularly for higher earners – and non-pension savings more attractive – often in ways that can most readily be taken up by the same higher earners.”
My word, this economics stuff is difficult, isn’t it!