It is difficult to generate much sympathy for the higher-rate tax payer these days, and it seems pretty clear that any substantial reduction in tax reliefs will not be in their favour.
While no one should be expecting barricades to be manned in London’s Holland Park, Edinburgh’s Morningside or Cheshire’s Wilmslow, what has struck me as strangely lacking is any significant argument against the change from industry players.
There have been calls to detach the defined-contribution and defined-benefit regimes, particularly given concerns about the growing impact of the lifetime limit. But no one has made a strong case for maintaining the present system, or at least most of it. You could argue that we have a simple system that allows you to defer your salary in a tax-incentivised way, and indeed that caps are enforced in this way already.
Yet defending ‘exempt, exempt, taxed’ is simply not in vogue. The current debate is usually framed in terms of the ‘unpensioned’ or ‘underpensioned’ basic-rate taxpayer, and how incentives are concentrated in the wrong place.
But what we certainly haven’t heard much about is the risk of breaking the attachment of employers to the pension system, were they start to feel as if the present structure is not treating them adequately.
That certainly used to be the argument rolled out when some concession was withdrawn or limit imposed in the past.
It may well be that the requirements of auto-enrolment make such an argument redundant. But if the debate does still have merit, it might focus on employers’ willingness to maintain contribution levels.
Is an employer who feels as if the pension system is now basically working against him or her going to want to offer more than the required minimum to the workforce?
It might be good if we could understand the psychology behind this, though the government seems to be in too much of a hurry to let that happen.
It still felt a little odd to see the Association of British Insurers advocating for a single rate of tax relief at 25 per cent or 33 per cent, and a matching contribution system. The trade body may feel the battle for the status quo is already lost and that it needs to see off the greater threat of the Pisa (Pensions Isa).
It may be right, and its arguments are backed by thorough research, but I did find myself wondering what all those higher-rate tax-paying customers – and the many investment advisers who recommend they use the various ABI members – would make of the trade body, which represents their pension companies, suggesting the system was too complex and “benefits wealthy savers the most”. The customers might argue they have more to save!
Meanwhile, everyone in the financial industry should be a little wary about matching – it sounds much more like an offer that can be taken away or at least dialled up and dialled down depending on national financial circumstances. If it is framed as money the government is contributing rather than as money the government is not taxing (for now), it may be more vulnerable. Just ask people on working families tax credits.
John Lappin writes on industry issues at www.themoneydebate.co.uk
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