Sigh. CPS's Michael Johnson's pre-budget pension reform calls. Again.

EdSwippet

Right on schedule to stoke pre-budget speculations to the maximum, Michael Johnson of the CPS is back on his regular hobby-horse:

In his report called Five Proposals to Simplify Saving, Johnson argues tax relief on pensions should be abolished and replaced with explicit bonuses on individual and employer retirement savings contributions.

He says these bonuses would not be connected to tax-paying status and also advocates the introduction of a cap on the total bonus any individual can receive in one year.

As is by now traditional, the report is full of half-truths and cherry-picked numbers designed to flatter the author's biases.

For example, concluding that pensions are unpopular because only £14.4bn was paid into private pensions last year (including SIPPs and SSASs), yet on the next page stating that the total cost of tax relief on pensions is £47bn. Or stating that 8% less goes into pensions than a decade ago without any mention or acknowledgement of the fact that this period saw massive reductions to both the annual and the lifetime allowances.

Or the specious apples-to-oranges comparison between fictitious 'spending' on ways to keep older people clothed and fed in retirement and real spending on defence. These are neither comparable nor necessarily fungible. No nod at all to practicality either. Defined benefits pensions get no mention anywhere -- are they simply excluded, being by now more or less the exclusive domain of the government decision makers here? And reminiscent of groundhog-day... from the latest paper:

The author has written several CPS papers proposing that all pensions tax relief be scrapped, including Costly and ineffective: why pension tax reliefs should be reformed (2012); Retirement saving incentives: the end of tax relief and a new beginning (2014); Time for TEE: the unification of pensions and ISAs (2015); An ISA-centric savings world (2015); What of DB, in a TEE world? (2016); and An ISA-centric framework beckons (2016).

Bimbly

The Crown Prosecution Service??

Thrugelmir

EdSwippet wrote: »

Or stating that 8% less goes into pensions than a decade ago without any mention or acknowledgement of the fact that this period saw massive reductions to both the annual and the lifetime allowances.

The lack of adequate contribution by the masses. Far exceeds the impact of the caps. The all time low savings rates across the board are testament to this.

dunstonh

In his report called Five Proposals to Simplify Saving, Johnson argues tax relief on pensions should be abolished and replaced with explicit bonuses on individual and employer retirement savings contributions.

That problem with that is that it increases tax relief. Employer contributions are a business expense. So, reduced corporation tax. No individual relief is given on employer contributions. So, he is proposing an increase in reliefs with that particular segment.

Or stating that 8% less goes into pensions than a decade ago without any mention or acknowledgement of the fact that this period saw massive reductions to both the annual and the lifetime allowances.

There is also the fact that pensions historically were "sold". Not bought. The end of the home service salesforces selling pensions and top ups every time they called meant consumers had to "buy" their pension by choice as no-one was getting them to do it. Yes you have AE but its small fry contributions in many cases.

Even today, advised clients get higher pensions than non-advised. Mainly due to advisers persuading people to pay in more.

Changing the tax wrapper to LISA style is not going to fix the problem that people do not pay enough in the fact they need to be encouraged to save.

EdSwippet

Thrugelmir wrote: »

The lack of adequate contribution by the masses. Far exceeds the impact of the caps. The all time low savings rates across the board are testament to this.

Doubtless there are several factors. The BOE's zero-interest-rate policy has to be a biggie for a start. There is little visible point in saving when your purchasing power fails to keep up with inflation for year after year.

But the continual and repeated lowering of pension contribution caps also have to be one of these factors too, and not necessarily a small one either. Except on planet Michael-Johnson that is, where they can be glossed over or whitewashed away entirely in order to artificially bolster a particular claim or bias.

EdSwippet

dunstonh wrote: »

Changing the tax wrapper to LISA style is not going to fix the problem that people do not pay enough in the fact they need to be encouraged to save.

Indeed. I am also continually surprised that a wholesale shift to LISA style that recasts tax 'relief' as a 'bonus' -- while reducing it for many taxpayers, entirely coincidentally of course! -- is the answer to anything. (Unless, of course, compulsion follows close behind.)

Making tax 'relief' look like a 'bonus' is entirely doable within the current framework. My payslip used to contain a single and admittedly a bit opaque pension contribution figure, but it would be trivial to change payslips to read more along the lines of: "Your own personal pension contribution: £X, Your employer's pension bonus contribution: £Y, Government tax relief bonus contribution: £Z".

In the report, 'simplify' is a euphemism for 'tax increase'. This vision of 'simplification' is not at all in the interest of anyone saving for retirement.

steampowered

It is a bit ridiculous to claim that contribution caps are a factor in people under-saving for their pension.

The cap is £40k, IIRC?

I don't think people who save £40k a year into their pension are the sorts of people that we are concerned about with regards to people not making proper pension contributions ...

westv

Bimbly wrote: »

The Crown Prosecution Service??

Centre for Policy Studies apparently.

Thrugelmir

EdSwippet wrote: »

Doubtless there are several factors. The BOE's zero-interest-rate policy has to be a biggie for a start. There is little visible point in saving when your purchasing power fails to keep up with inflation for year after year.

With reference to pensions. Purchasing power has kept pace over the same time frame. The BOE policy has been to drive people to invest in riskier assets not just hold cash on deposit.

MK62

EdSwippet wrote: »

In the report, 'simplify' is a euphemism for 'tax increase'. This vision of 'simplification' is not at all in the interest of anyone saving for retirement.

It's probably in the interests of anyone not receiving higher rate pension tax relief, or those not putting more than about £12500pa into their pensions.......as their relief, or "bonus" might well increase.....I suspect that's a large majority of the population too tbh.

I don't particularly agree with some of his proposals, but I think he has a point about the current pension contribution tax relief system not really doing what it's supposed to.
Higher rate relief and NI avoidance in the form of salary sacrifice arrangements are things which probably should be "visited" by the chancellor - using that as an excuse for a massive tax grab should be ruled out, but it should be looked at before any rate increases in income tax, NI, or VAT are considered.....

Just saying....

EdSwippet

steampowered wrote: »

It is a bit ridiculous to claim that contribution caps are a factor in people under-saving for their pension.

That is not what I said.

The report states that there is 8% less overall going in to pensions than a decade ago, and uses that fact to support the assertion that pensions are now less popular than in the past, but without looking at any of the reasons why this is the case or which income bands if any are disproportionately represented in this 8%.

One possible reason may be the reduced caps. If the top 10% really do gather 40% of pension tax relief then clearly they are the cohort making the larger share of pension contributions. An 8% reduction could be just these 10%-ers cutting back because they have had to, but nobody else cutting back at all. The 8% reduction is never segmented, but the implicit assumption that it is across-the-board for taxpayers in all earnings bands seems highly suspect given the changes to pensions allowances at the top end of earnings that have occurred over the period.