‘Death tax’ cut masks pensions-induced penury

I make no apologies for the degree of coverage we’ve afforded this key piece of legislation, in contrast to the more muted output of peers. This is a critical financial planning consideration, and a vital component in the radical changes to pensions taxation that were initiated at the Budget.

In most important respects I wholeheartedly endorse the move. If I save all of my life, I find it an imposition for the government to take more than half of my money just because I might have had the temerity to pop my clogs before I could spend it.

Moreover, given that pensioners have unfettered access to their pension funds from April anyway, it would create a moral hazard to continue with a tax scheme that effectively punished those that opted for prudence over the infamous hypothetical super-powered car purchase.

Taken as a whole, we will hopefully soon have a regime that encourages - and then adequately rewards - the judiciously frugal rather than the feckless.

But - and there is a big but, I’m afraid - while lavishing praise on the government for squaring this circle, I find myself quietly seething that yet again we are concentrating the limited means the government is prepared to spare from the austerity scythe on pensioners.

In the same speech that chancellor George Osborne announced the demise of the death tax, he also confirmed a fresh round of welfare cuts that will see the annual amount a household can claim drop by £3,000 and all working age benefits frozen for two years.

I find it truly frightening that as a country we’re adding a 12-figure sum to a debt pile of currently more than £1,400bn

It’s all part of a government drive to cut £12bn from the public finances in a renewed attack on the stubborn budget deficit, which has ballooned again to £99bn as a result of tax cuts for lower income workers that took an unexpectedly sizable chunk out of income tax receipts.

We’re likely to see more action aimed squarely at working age people: in addition to the 10m people that will be affected by the welfare freeze announced yesterday (5m are actually in work), the prime minister is set to announce tomorrow that those aged under 21 and out of work are to be barred from claiming jobseekers benefit.

I am aware we need to take action on the deficit. I find it truly frightening that as a country we’re adding a 12-figure sum to a debt pile of currently more than £1,400bn.

One day we’ll sell those bank assets and we have some other wares we can pawn off too, but we simply must get the deficit under control. I just don’t think we’ll do this without ending our pensioner profligacy.

According to government figures, the UK will spend £114bn on pensions this year, which means it will make up more than two-thirds of all benefit spend. Working-age benefits, where all of the cuts are being targeted, will be £52bn.

If you broaden out the numbers to include tax credits and everything else under the ‘social protection’ umbrella, pensioners still make up significantly more than half of the £222bn bill quoted at the last Budget - and rising.

But due to the disproportionate sway of the ‘grey vote’, these uncomfortable truths get buried. Let’s not forget, all of the main parties are still promising older voters above-inflation rises under the so-called ‘triple-lock’.

Even under these new proposals, however much they are broadly commendable, beneficiaries of someone aged under 75 who dies when in drawdown will face no tax whatsoever to withdraw their money, even if they take it as a lump sum.

While we’re aggressively hitting younger voters with necessary austerity, I don’t see how this can be justified. And more broadly, I don’t understand how we can keep ignoring the pensions elephant weighing on our parlous national accounts.