The call by Mark Wadsworth last Tuesday on ConHome to scrap pension tax relief for higher rate taxpayers should be ignored by George Osborne. Mark’s arguments don’t stack up in the real world – and scrapping higher rate relief would hit middle-earners and entrepreneurs hard.
Most people who benefit from the higher rate tax relief are not rich. Four-fifths of them earn between £42k and £107k. Okay, so that doesn’t make them poor, but they’re not swilling champagne and jetting off holiday all the time either. They are the back-bone of the UK economy. Reducing the lifetime allowance on pensions savings could see entrepreneurs facing a ridiculous 55% tax. People like my dad, who has worked hard all his life, for various companies, and has now built up his own small business that employs a couple of people. My sister and I are grown-up, and he’s at the stage when he doesn’t have the demands on his wallet that he did for most of his working life. Instead he can look to the future and try to save more. Why not let him keep a bit more of the money he earns now so that he can have a better retirement and not rely on the state? He’s precisely the kind of person the Conservatives ought to be backing, not kicking.
The higher rate relief encourages people to save, contrary to the arguments that Mark Wadsworth makes. The report on pension fees by Dr Christopher Sier and David Norman that he cites has been heavily criticised and all its figures disputed vehemently by the asset management industry. The market works to force costs down and the industry itself is opening up the fees structure so that consumers can more easily make up their own minds. But - and it is a big but - even if the fees paid to insurers did match the tax relief savers receive, it is still a boost to long-term saving. Pension funds aren’t free to manage; they need to be paid for. If savers get help paying the fees then they’ll be able to save more.