While you quietly digest this article, sipping on a piña colada and enjoying a hard-earned break in the sun away from client meetings, I will be walking in the Serra de Tramuntana.
Wandering aimlessly in the beautiful mountains of Mallorca has become an annual ritual, akin to renewing my season ticket at West Bromwich Albion Football Club.
I will use the break to clear out the personal finance cobwebs clogging my mind.
When not walking, I will be meeting friends, doing a little bit of running and enjoying the odd glass or three of Galdent.
This time around, I will also be plotting personal finance campaigns to launch once the summer has run its course (a new editor is arriving at The Mail on Sunday).
But Mr Hammond may well argue that the removal of all higher rate pension tax relief is one of the prices worth paying for a better funded NHS. He could also justify it on fairness grounds.In addition, I will be spending a little time thinking about what the government intends doing to finance its promised multi-billion pound boost to the National Health Service, a strategy that will become clearer when the Autumn Budget is delivered in October or November (no date has been confirmed).
Come what may, something will have to give. Reduced government spending elsewhere.
More borrowing – and no doubt higher taxes for us all.Yet more increases in insurance premium tax? A more draconian VAT regime? Anything is possible.
What to expect
We were given an indication of one of the key personal finance areas that may well get impacted by publication of the latest report from the Treasury select committee on household finances.
Overall, the committee’s analysis makes for somewhat bleak reading as it concludes that the pressure on most households’ finances remains sky high as a result of persistent weak income growth and high levels of personal debt.
The household savings ratio – our propensity to save for the future – is dropping like a stone. Thank goodness, the report sidesteps the thorny issue of Brexit and the potential damage it could do to many households’ finances.
But it is the committee’s view on savings – in particular tax-friendly Isas and tax relief enhanced pensions – that could attract the attention of chancellor Philip Hammond in the run-up to his Autumn Budget.
He may seize upon a number of the ideas discussed in the report to cut down on the amount of tax relief the Treasury hands out to predominantly wealthy people.
This relief, the report highlights, currently costs the taxpayer some £41bn a year by way of both income tax relief and national insurance contribution relief on pension contributions. To put this into context, the government aims to boost annual NHS spending by £20bn between now and 2023.
The committee’s view – having sought along the way the views of numerous pension experts – is that tax relief on contributions is neither an effective nor fair way of incentivising saving into pensions.
More than half of the income tax relief paid on pension contributions goes to individuals earning £50,000 or more.
Although it suggests that ‘fundamental reform’ is needed, the committee accepts that this may be a step too far for Mr Hammond to take now. A halfway house, it concludes, would be for the chancellor to introduce a flat rate of relief – and reduce the current £40,000 annual contribution allowance.
The only concession from the committee as far as pension savers are concerned is a recommendation that the lifetime allowance, currently set at £1.03m, should then be abolished.
Of course, previous chancellors have toyed with similar pension reform in the past – none more so than Mr Hammond’s predecessor George Osborne – but they have then backed away at the last moment, fearing a Middle England backlash.
But Mr Hammond may well argue that the removal of all higher rate pension tax relief is one of the prices worth paying for a better funded NHS. He could also justify it on fairness grounds.
Having said that, any reining back on pension tax relief is sure to kick up a storm.
The committee’s views on Lifetime Isas are altogether more clear. All the evidence it took from experts points to the product’s “complexity, its perverse incentives, its lack of complementarity with the pensions savings landscape and its apparent lack of popularity with the industry and pension savers”.
Its recommendation is to the point: “The government should abolish it.” Few would disagree. Indeed, I think the Budget would be a good time for Mr Hammond to do a little bit of tidying up on the Isa front.
Earlier this year, the Association of Accounting Technicians proposed the clearing of the Isa ways with an all embracing ‘Everything’ Isa – a plan that would stay with you from cradle to grave. Instead of an annual allowance, there would instead be a lifetime contribution cap of £1m.
Like the Treasury select committee, it also said Lisa should be given its marching orders.
Food for thought, I would say, over another piña colada.
Jeff Prestridge is personal finance editor of The Mail on Sunday
