Budget 2009 - pensions: what is the real agenda ?

Having waded through Finance Bill 2009, sch 35, and been left none the wiser by the pitiful showing by the Chancellor before the Treasury Select Committee, we can still only ponder over quite what the government is really looking to achieve ?

The mantra of the richest 1% getting 25% of the tax relief is, presumably, intended to leave the uninformed with the impression that 99% of the population are giving a subsidy of billions to the tiny minority. But, not only is this is not the case but it is, arguably, the richest 1% who subsidise the remaining 99% through their participation in pension schemes. Or, at least, they did. Whether they will carry on doing so must now be in serious doubt. In which case, it should be the 99% who should be complaining.

Firstly, the relief from income tax which is granted to any pension contributor, rich or poor, is only a relief when viewed in the narrow context of the year of contribution. In the wider, more measured sense, it is more accurately not a tax relief at all but, rather, a scheme of tax deferral expressly sanctioned by parliament to encourage old age saving.  Now, if pensions were exempt from tax at the end of the contributor’s working life, when the income comes to be drawn, it would be a different story, but they are not exempt and one certainly cannot envisage that changing anytime soon. The symmetry over the lifetime of a pension scheme is not perfect, neither in principle nor in practice, but the reality is that the demonic rich filth getting more than their “fair share” of the tax relief on their contrbutions are also the same persons who pay shedloads of tax on their pensions when they are in retirement. And no one hears the government bellyaching about the income tax they receive from the rich pensioners.

Secondly, the pensions culture of the UK is hideously complex and  expensive to administer; and in no small measure due to the current government who has performed its usual trick of simplifying the system by making it twice as complicated as it was beforehand. Most of us struggle to save a sufficiently large enough amount for our retirement. For those of us paying relatively small amounts into approved schemes, we are subsidised in the costs of administration and general patronage through the participation of the bigger contributors. Take away the big payers, of £10,000 or £20,000 a month in contributions, and does anyone really think the pension providers will be equally keen on dealing only with those individuals paying £100 or £200 per month, when the cost to the providers of doing so will outstrip the administration charges and investment commissions etc., which can be levied ?

Even with the proven low quality of the current incumbents in government, it is hard to accept that there cannot be something more behind this proposed change in the law, no matter how feeble minded and flawed that thinking might be.

One such reason might be that, in seeking to make formalised pensions savings unattractive not just for the wealthy, but for the far less wealthy also, the government is hoping that savings will be diverted elsewhere. The oft criticised 1997 pension changes led, it is commonly felt, to a major shift in the behaviour of many above average earners who eschewed pensions in favour of investing instead into their homes and into buy to lets, thereby contributing to an overpriced housing market and, worse still,  the infliction on the nation of Kirstie Allsop.  Might it be that the government is hoping that the inarguably fragile housing market will now be buoyed through the creation of another wave of  irrational investment ?