Firms blocking freedoms boost Osborne’s coffers

What remains unclear is how much and for how long it will last. This depends on a number of things, including how well-informed investors are and how the pensions industry behaves.

It is clear that many people remain unaware that 30 per cent of their pension could be clobbered if they are a higher rate taxpayer, allowing for the tax-free lump sum.

And the complexity of our tax system means that those with larger pensions could face a marginal rate of 60 per cent on some of their pension.

But while investor impatience may be partly behind some potential tax bills, the industry must carry its share of the blame for becoming an unwitting friend to the chancellor.

The BBC’s You and Yours programme on Radio 4 recently featured some fairly typical cases of people who would like to take some of their money but have been told by their insurer it is all or nothing.

The refusal by some insurers to allow flexible withdrawal of the pensions has left them facing a big tax bill or the prospect of charges if they want to move their money elsewhere.

Bristol-based Hargreaves Lansdown’s Tom McPhail estimates the government could enjoy a £700m tax windfall this year thanks to the pension changes – that is more than twice the Revenue & Customs estimate.

I suspect to some extent this will depend on the intransigence of parts of the pensions industry.

How many of those taking all their money at once and losing a hefty chunk to tax are being forced into a corner by their insurer?

Surely, in the interests of their customers, firms must move quickly to offer the full flexibility or allow customers penalty-free transfers to firms that will.

In the interests of their customers firms must move quickly to offer the full flexibility

We will not get a clear picture of the actual tax windfall for some time yet – not until the industry gets to grip with the new world and the money starts flowing out of pensions at new normal levels.

It is no wonder the chancellor has a smile on his face whenever he talks about pensions. It is just a shame the insurance industry is helping to put it there.

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What a relief!

The change to tax relief on buy-to-let mortgages will not create a level playing field between first-time buyers and investors. But at least it will help to even out the slope.

By restricting tax relief to the basic rate – albeit gradually – George Osborne will bring money into the government’s coffers and make it more difficult for investors to use their greater financial muscle to outbid young homebuyers.

A number of spurious arguments have been put up against restricting this relief – and some convoluted calculations have attempted to prove just how unprofitable buy-to-let can be.

These calculations often ignore capital growth, the various other tax relief claimed by landlords and the cheaper mortgages often available to investors.

If buy-to-let really is such a miserable investment you have to wonder why so many have jumped onto the bandwagon.

Another common reason bandied around for retaining tax relief is that landlords will put up rents. Well there has been precious little restraint under the current regime, with average rents rising by 3.7 per cent in the year to March 2015, according to Your Move and Reeds Rains.

With the looming restrictions to pension contributions for the highest earners there is a real danger of a fresh wave of money hitting buy-t- let and swamping young buyers.

This action was sorely needed. After the next election the government should consider phasing out interest relief altogether.

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Credit where it’s due

It is a little off-subject for this column, but I have been fascinated by the government’s attacks on big business over payment of the living wage.

This is judged to be £7.85 per hour in most of the UK and £9.15 in London.

Since the election, the government has been stepping up the pressure by arguing that businesses paying low wages that trigger tax credits are being subsidised by other taxpayers.

If Labour had put forward this argument they would have been described as being anti-business. But the Tories can pile on the pressure without fear of facing this argument.

If Starbucks, Amazon et al will not pay a decent amount of tax, the least they can do is pay their workers enough money so that the rest of us are not effectively subsidising them. Sounds fair enough to me.

Tony Hazell writes for the Daily Mail’s Money Mail section.