Jeff PrestridgeJan 23 2019

Time to scrap this tax trap

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Time to scrap this tax trap
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Given the political shenanigans of recent days, it is amazing anything has happened in London SW1 – home of our country’s parliament – that is not connected to Brexit.

But, amazingly it has, both for good and for bad.

On the ‘bad’ front, we have seen the government sneak out a nasty rule change that will result in many households up and down the country losing their entitlement in the future to means-tested pension credit.

From May, only households where both partners are of retirement age will be eligible to make a new claim for the credit – as opposed to the current position where only one partner need be of pension age to trigger a successful claim.

While the new legislation represents a good start in attempting to eliminate pension fraud, what is more imperative is that the law is actually used and offenders hit with fines.

Although the announcement was sneaked out the day before Prime Minister Theresa May lost the vote on her Brexit deal (January 15) it still attracted the attention of some.

Stephen Lloyd, a former Liberal Democrat who is now an independent MP for Eastbourne, accused the government of burying “bad news by surreptitiously releasing it when the bedlam caused by their own Brexit incompetence is at its height”.

For clarity’s sake, Mr Lloyd resigned the Liberal Democrat whip late last year because he said his party’s position on Brexit was at odds with his pledge to constituents to honour the result of the Brexit vote in June 2016.

Stealth cut

Caroline Abrahams, charity director at Age Concern, said the rule change was “very bad news” and a “substantial stealth cut” given that a couple claiming pension credit in the future could receive £140 less a week than an elderly couple currently in receipt of the credit.

On the ‘good’ front, we have at long last seen a ‘ban’ on pension cold-calling introduced.

I use the word ban lightly because such calls will still be able to be made by fraudsters.

But as a result of the new legislation, cold callers now face fines, if caught, of up to £500,000 from the Information Commissioner’s Office – an organisation set up to uphold information rights in the public’s interest.

A penalty that may get some scammers – not all – to think twice before picking up the phone and searching out targets.

While the new legislation represents a good start in attempting to eliminate pension fraud, what is more imperative is that the law is actually used and offenders hit with fines.

Only over the coming months will we learn whether the ICO has the courage and the resource to go after cold callers and hold them to account.

Will they be more like a bungling inspector Jacques Clouseau in exercising their powers under the new legislation? Or will they be as zealous as Jack Regan was in The Sweeney?

Before I move on, a big hearty pat on the back for Darren Cooke, a chartered financial planner with Red Circle Financial Planning, for his part in getting this ban introduced.

It was his decision to launch a parliamentary petition in late 2016 on a cold-calling ban that initiated wider interest in the subject and persuaded the government to act.

What has also been intriguing to learn in recent weeks – while Brexit has gripped parliament in a vice – is that at long last someone in government has acknowledged the unfairness of the pension lifetime allowance: an allowance that currently puts a cap on pension savings of £1.033m with any excess subject to punitive taxes.

The brave soul to raise his head above the parapet is none other than Matt Hancock, secretary of state for health and social care.

In an interview with health magazine Pulse, he admitted that tax charges on pensions are “the biggest concern I have raised with me by GPs”, and that the LTA was one of the reasons why some GPs were retiring early.

He also confirmed he had raised the issue with Philip Hammond, chancellor of the exchequer.

Nasty tax trap

Hallelujah. I have long argued that the LTA has become a nasty tax trap, primarily due to George Osborne’s decision to take an axe to it, a piece of butchery that saw the allowance reduced to £1m – compared with £1.5m when it was introduced for the tax year starting April 6 2006 and £1.8m for both tax years commencing April 6 2010 and 2011.

The allowance is a crude penalty on prudence. It also represents a tax on investment success. At odds with what a Conservative government – however shaky and poorly led under Mrs May – should stand for; encouraging long-term saving.

Its unfairness is amplified by the fact that the amount savers can put into a pension is already controlled by the annual allowance – a maximum of £40,000 for most savers, less for additional rate taxpayers.

It is a bit like planting some sunflower seeds in the garden at home and lovingly nurturing them so that they flower magnificently, only for someone to come along from HM Revenue & Customs and cut off their heads because they look too good.

It is time to scrap this horrible pension tax. Financial experts think so – Tilney’s head of retirement planning Andy James describes the LTA as “fundamentally punitive” – spot on. Even Sir Steve Webb, former pensions minister, believes it should be axed. I rest my case.

Jeff Prestridge is personal finance editor of the Mail on Sunday