Osborne's tinkering revealed as damaging
EdSwippet
Posts: 1,588 Forumite
The Office for Budget Responsibility has just released a report showing that George Osborne's endless meddling with pension rules and regimes over the past couple of government terms will damage both pension savers' prospects and the government's long-term financial outlook. A textbook lose-lose outcome looms.
It should surprise nobody that pulling tax revenue forwards means it's not there for the future. Well, nobody except George Osborne, that is. But then, the future is not his problem.
From the report:
It should surprise nobody that pulling tax revenue forwards means it's not there for the future. Well, nobody except George Osborne, that is. But then, the future is not his problem.
From the report:
... The net effect on the public finances is positive in the early years, peaking at £2.3 billion in 2018-19 before turning negative from 2021-22 – the year after our March 2016 forecast horizon.
But the small net gain to the public finances from these measures over the medium-term is reversed in the long term as the net cost continues to rise, reaching £5 billion by 2034-35. Expressed as a share of GDP – a more relevant metric when considering fiscal sustainability – the net cost builds up until it reaches a steady state toward the end of the period of just over 0.1 per cent of GDP. If that steady-state effect was to continue to the end of our usual long-term projection horizon of 50 years, that seemingly small cost would add 3.7 per cent of GDP to public sector net debt.
0
Comments
-
Pretty sure private pensions will be raided to keep up the state pension... expect laws against the former.... e.g. reduction of lifetime allowance, reduction of yearly allowance, etc...0
-
Pretty sure private pensions will be raided to keep up the state pension... expect laws against the former.... e.g. reduction of lifetime allowance, reduction of yearly allowance, etc...
These allowance reductions have already been happening.
But it's all much older than that.
If we go back about 20 years, actuaries were getting sums wrong all over the place. Equitable Life was in trouble due to conflicts of interest between people with and without guaranteed annuities, FTSE company reports were saying several years in a row that yet again we've been advised that no pension contributions are necessary this year, and the civil servant ones were telling Gordon Brown that the tax regime on pensions was unfairly lenient.0 -
Pretty sure private pensions will be raided to keep up the state pension... expect laws against the former.... e.g. reduction of lifetime allowance, reduction of yearly allowance, etc...
Reduction in future allowances is hardly raiding of private pensions. That term surely implies removal of already accrued money/benefits.0 -
Seems to me that the obvious thing to hit would be the 40% tax relief on pensions.
One figure for all could be spun as fairer, and maybe it would be, why should I get an extra £2k on every £10k that someone else, on basic rate and less able to afford a pension, gets?
Wasnt it even floated a few months back, maybe a 30% blanket rate?
Only a matter of time i reckon.0 -
It's a kite that has been flown so often that the air above 11 Downing St must now consist almost entirely of a tangled mess of string. Of course, one possible secondary effect here could be to push higher rate taxpayers out of pensions and into other savings vehicles even further than the tinkering over the past decade has done. Again pulling revenue forwards from the future, which is not the same as generating new revenue. Obvious is not always wisest.AnotherJoe wrote: »Wasnt it even floated a few months back, maybe a 30% blanket rate?
How about this latest kite: replace tax deferral with a government top up on pension contributions calculated at 100% minus the persons' age. What could possibly go wrong?!0 -
AnotherJoe wrote: »Wasnt it even floated a few months back, maybe a 30% blanket rate?
Only a matter of time i reckon.
Incentivising people to save must be a top priority. Auto enrollment at current contribution levels isn't enough. Agree that subsidising those that can afford to provide for their retirement isn't equitable. 30% seems a sensible compromise.0 -
Unfortunately none of those things is true. From chart 4.2:showing that George Osborne's endless meddling with pension rules and regimes over the past couple of government terms will damage both pension savers' prospects and the government's long-term financial outlook.- Annuities secondary market: increase in revenue through 2018-19 then no long term effect through 2034-35.
- Pensions tax relief effect of annual allowance changes: increase in revenue throughout the whole projection period, the largest single pension effect with a long term revenue gain estimated at 0.08-0.09% of GDP a year.
- Pensions tax relief effect of lifetime allowance changes: increase in revenue throughout the whole projection period, around 0.06% of GDP a year at the end.
- Pensions, lowered tax on withdrawing from 55% to income tax rate: increase in revenue in the early years gradually decreasing until it's about zero in 2030 then becomes a little negative at about 0.01% of GDP a year.
The costs mainly come from the savings measures, with end of projection annual costs of about 0.33% of GDP a year from them.
I'm unsure about you but I do not consider the introduction of pensions flexibility that stopped forcing me to use non-pension investing for the start of my retirement because the GAD limit was way too low was harmful to me. It's made pension saving considerably more attractive to me and I've substantially increased my pension saving as a result.0 -
The cost-reducing pension measures do not exist in a vacuum. The cost-increasing savings measures are part-and-parcel of an overall and concerted shift in the larger savings landscape, which has been a gradual transition of emphasis, from tax-deferred and taxed later (pensions) to taxed-now but tax-free later (ISAs, and to a lesser degree ordinary savings accounts).Unfortunately none of those things is true. ... The costs mainly come from the savings measures, with end of projection annual costs of about 0.33% of GDP a year from them.
This brings revenue forwards, but it also reduces what's available later, both because it has been taxed already and because there is less of it to tax now since it has not been allowed to grow over time.
Different measures will clearly affect different folk in different ways and by different degrees. For you it seems that flexibility wins out, so that's good for you.I'm unsure about you but I do not consider the introduction of pensions flexibility that stopped forcing me to use non-pension investing for the start of my retirement because the GAD limit was way too low was harmful to me. It's made pension saving considerably more attractive to me and I've substantially increased my pension saving as a result.
For me, lifetime allowance issues centred around the repeated reductions have not only made it sensible for me to stop contributing to a pension, but in fact have also catalysed an earlier-than-expected retirement. This make me an obvious counter-example to your statement above.0 -
Your original assertion was confined to pensions: "meddling with pension rules and regimes over the past couple of government terms will damage both pension savers' prospects and the government's long-term financial outlook".The cost-reducing pension measures do not exist in a vacuum. The cost-increasing savings measures are part-and-parcel of an overall and concerted shift in the larger savings landscape, which has been a gradual transition of emphasis, from tax-deferred and taxed later (pensions) to taxed-now but tax-free later (ISAs, and to a lesser degree ordinary savings accounts).
If the non-pension measures are included as well there is a net cost. I'm not sure that cost is harmful, though, since people can benefit from those changes. Since the majority of the measures involved are helpful mainly to younger people that's perhaps not a bad thing.
The problem with you as a counter-example is that you are unusual. Only a relatively small number of people who pay into pensions end up subject to the lifetime allowance. Of course for you that costs you pension tax relief. Most people don't pay any extra cost because of the lifetime allowance and just gain from the changes to tax relief and access. Even you might be gaining from the access if you're withdrawing more than the GAD limit would have allowed.For me, lifetime allowance issues centred around the repeated reductions have not only made it sensible for me to stop contributing to a pension, but in fact have also catalysed an earlier-than-expected retirement. This make me an obvious counter-example to your statement above.0 -
I believe a significant number of GPs are in this position, and choosing to retire at 55-ish, despite the actuarial reduction.For me, lifetime allowance issues centred around the repeated reductions have not only made it sensible for me to stop contributing to a pension, but in fact have also catalysed an earlier-than-expected retirement. This make me an obvious counter-example to your statement above.0
This discussion has been closed.
Categories
- All Categories
- 343.1K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.2K Work, Benefits & Business
- 607.9K Mortgages, Homes & Bills
- 173K Life & Family
- 247.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards