There’s an easy solution here

Not a good one but it would be fun politically:

Savers may face a fresh raid on pensions as the cost of tax relief passed £50 billion for the first time.

Hmm.

There is also disquiet that at least 70 per cent of the cost goes to members of final-salary pension schemes, who are usually older workers who already have very comfortable pensions.

Abolish it for defined benefit pensions, keep it only for defined contribution. That, not entirely but mostly, screws those public sector pensions and leaves the private sector alone.

It would also, at a stroke, clip that 30% pay premium the public sector has as a result of those very generous pensions.

Not going to happen and I’m not entirely serious. But wouldn’t it be fun?

8 thoughts on “There’s an easy solution here”

  1. What does it ‘cost’ the government not to tax everything at 100%? If we did that we could pay for every hard of thinking lefties pet project (for the 5 seconds until the country went bust).

    What is so hard about the notion that the government doesn’t have any money – only what the taxpayer provides?

  2. I’m not an accountant, but isn’t it relatively trivial to avoid this by setting up a one-man company for your pay, then instead of shovelling your spare money into your pension, leave it in the company and draw down slowly in retirement? Effectively your company becomes the wrapper for your untaxed savings, which are then taxed at normal rates upon withdrawal.

  3. Leaving profits in the company means they have been taxed at CT rates, so not tax free. But so-called money box companies are growing in popularity.

  4. “But so-called money box companies are growing in popularity.”

    Yep – lots of small companies at CH increasing bank and P&L reserves.

    Hence The Boy George’s (retro) divi tax…

  5. AndrewC,

    You mean the dividends would be taxed at CT rates? Yes, that is unfortunate: it means a yield of 4% rather than 5% (for example). But if you’re already close to retirement, then you’re only suffering that hit for a few years. (Obviously you’d drawdown on the company money first, before touching your main pension; assuming no DB pension involved.)

    Given the 25% tax-free lump sum though, contributing to a pension might still work out better. I’m surprised that the chancellor doesn’t reduce or cap the tax-free lump sum first; it would be a politically painless move for a Tory chancellor.

  6. PF,

    Pensioners don’t pay NI, so their company would just pay them as salary, not dividend. Or they could just liquidate and claim Entrepreneur’s Relief.

    I’m not an accountant, so I may be wrong about this. Again, scrapping or limiting Entrepreneur’s Relief (at least in certain conditions) could be a painless money-spinner for the chancellor.

  7. Andrew M

    Often it’s a case of salaries / divs being paid out previously, utilising basic rates, with C Tax paid at 20%, and keeping any excess profits in the company (rather than incur higher personal rates).

    In later years, those reserves could have come out tax free as dividends (again, basic rates, no extra personal tax) until Boy George intriduced the divi tax?

    Liquidate/EIS, yes, sure, but that’s 10% so more than a subsequent 7.5% dividend drip feed, unless it’s all wanted out at once?

    “Painless” ..:)

  8. @ Andrews
    The idea of setting up a personal company only works for the relatively small minority of self-employed people on high incomes. It just doesn’t do anything for the large majorioty of private sector workers – an overall majority of all workers – who are employees.
    I’ve been self-employed for over twenty years and every time I looked the hassle of setting up a private limited company wasn’t worth it.

Leave a Reply

Your email address will not be published. Required fields are marked *