This is no time to tax aspiration

Today we are looking down the barrel and facing the potential for more cuts that could catch out swaths of workers who certainly do not consider themselves well off.

When the government started slashing away at the annual and lifetime pension allowances it said that fewer than 4 per cent of pots were more than £1m.

But this was hardly the point. The lifetime allowance in particular is a diabolical tax on aspiration – and sends a terrible message about sensible investment to those just starting out.

Now we find out that tax receipts from the restrictions on annual and lifetime allowances are soaring.

The Tories should be pro-aspiration. The message from investing in a pension should be that there is no penalty for sound investment.

Official figures showed that £382m worth of pension contributions bust the annual allowance of £40,000 in 2016, giving the Treasury an extra £150m. It caught out 18,930 savers – up from 7,150 in 2015-16. At the same time, some £102m was raked in from savers who went over the lifetime allowance of £1m for that year.

The cuts to the lifetime and annual allowances were always going to catch out more people than the Treasury estimated. 

That most of the pension cuts have come under a Conservative government is particularly hard to stomach – though I admit it is not out of character for a party that has seemingly become thoroughly anti-business, despite their recent party conference attempts.

The Tories should be pro-aspiration. The message from investing in a pension should be that there is no penalty for sound investment. In that respect they should scrap the lifetime allowance altogether.

Sure, those on the left would moan, but they have already shown no understanding of financial personal responsibility. 

I believe most people in Britain want a society where their own prudence is rewarded so that they do not have to rely on the state. 

Grudgingly I admit that the scrapping of a lifetime limit may need to be coupled with a reduction in the annual allowance, to say £25,000 – but that is more than generous enough for nine in 10 workers.

This would send the correct signal to the millions now invested in pensions: save wisely, invest well and you could build up a pension scheme beyond your wildest dreams. There is a caveat to this, of course.

It is time to split the rules for defined benefit schemes. They should still have a lifetime allowance and the calculation for this should be altered to reflect its real worth. So instead of 20 times annual income, it should be around 40 times. Maybe then those in the civil service would realise just how valuable their pensions are. 

With these restrictions you could then get rid of the dastardly and utterly confusing tapered annual allowance that almost no-one understands. 

I am always moaning about fiddling with pensions rules. But where there is an opportunity to reward saving and get rid of needless complexity, it should not be ignored.

Mifid in the slow lane 

It has been four years since investment firms were first told about the Markets in Financial Instruments Directive rules that would force them to lay bare charges. Mifid II rules were introduced in January this year. So how has the City regulator decided to monitor the reforms?

The FCA has not bothered. Apparently, the rules are so complicated for the investment businesses that it will wait until at least January next year before finding out if businesses are complying.

Meanwhile, savers charged more than they think will keep being fleeced.

What a cop-out. With their myriad lawyers, compliance teams, policy experts and highly paid executives surely they should have been ready for this change?

Then again, investment houses have been fighting change on fees for decades, so why move so fast now?

BTL tax raid goes wrong

Buy-to-let investors have been hammered with tax, under the misguided assumption it will free up properties for first-time buyers.

So what do they do? They stop buying, restricting the availability of rental properties, which pushes up rents, thereby hitting the people it was supposed to help. Not only that, but the stamp duty take falls too. In the history of flawed policy-making the buy-to-let tax raid takes some beating.

James Coney is money editor of The Sunday Times