PensionsOct 17 2017

Former pension minister slates ‘old for young’ tax plan

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Former pension minister slates ‘old for young’ tax plan

Former pensions minister Baroness Ros Altmann has spoken out on the ‘old for young’ tax plan, urging the Chancellor Philip Hammond to “avoid knee-jerk panic tax changes that could alienate older voters”.

According to reports, which have not been confirmed by the Treasury, the government plans to cut national insurance contributions for workers in their 20s and 30s, which would be funded by reducing tax relief for people approaching retirement.

Baroness Altmann said: “Age is not a reliable indicator of wealth, health or ability to pay.

“Some young people are earning huge sums, some older people are and always have been living on extremely low incomes. Favouring one age group will potentially alienate others.”

She also suggested that punishing older people “to provide more money for the young could harbour potentially lethal political damage”.

She said: “The Tories core voters are older people, it would be rash in the extreme to risk alienating them in the coming budget.

“The lesson from the election manifesto is that punishing the old is not a sensible way to attract younger voters, but is a recipe for losing support of older generations.”

As an alternative, Baroness Altmann suggests that the government should address housing costs and student debts correctly; build more suitable new housing, and incentivise institutional assets to invest in social housing.

Another suggestion would be a tax relief reform, which could offer flat-rate incentives.

She said: “A quid pro quo for reducing the taxpayer bonus to higher earners' pensions could be to remove the illogical lifetime allowance on pension accruals which threaten to punish those whose funds perform particularly well.”

Baroness Altmann also argued that the government should deal with the crisis in social care.

She said: “Currently, younger generations face being burdened by huge costs of elderly care for baby boomers who run out of money by the time they reach their 80s.

“The Chancellor would be well-advised to introduce measures to encourage older people who do have money in pensions or Isas or valuable properties, to earmark a specified sum - say £100,000 - that would cover them if they need care.”

But pensions expert and founder of Pension Playpen Henry Tapper, argued the ‘old for young’ tax plan could be a good measure.

He said: “As it stands at the moment, the pension system is weighted against the young people, and in favour of older people.

“From what I read about it, it supposes that there will be substantial national insurance reductions for younger people, and if that is the case, the instance for putting pension contributions up for younger people is much stronger.”

Some in the pensions industry, including AJ Bell and Standard Life, have snubbed the proposed plan to help younger people.

Mr Tapper said it is not a surprise that the pensions industry is against such measure.

He said: “The pension industry will be on the side of older people, because there is where the clients’ money is, and younger people, frankly, are tomorrow's problem.”

Mr Tapper is surprised that older people are astonished by such measure, since Chancellor George Osborne had plans to reduce tax relief.

In 2016, the Chancellor dropped plans to either scrap upfront relief in favour of a ‘Pension Isa’ with tax-free withdrawals from aged 55, or introduce a new flat rate of tax relief, which would have benefited lower earners and hit the wealthier core of Tory voters.

Mr Tapper said: “We know the [HM] Treasury has some detailed models on how they can actually reduce the amount of tax relief, because that was what George Osborne was working on two years ago.”

maria.espadinha@ft.com