Pensions prove easy targets

By THIS IS MONEY
Updated:

 

Labour has long viewed the complex world of pensions as an irksome distraction at best.

At worst, Gordon Brown and his compadres have treated the nation's pool of savings as a piggy bank to raid at their whim.

Wednesday's Budget measures were New Labour at its worst.

The Treasury has introduced a stiflingly complex new set of reforms that will further impair Britain's pensions culture, while making only a minimal impact on our £1trillion-plus national debt.

The £3.1bn raid on wealthy people's retirement plans is riddled with logical inconsistencies, as analysis from the Institute for Fiscal Studies showed yesterday.

From April 2011, people earning £150,000 or more will see a graduated reduction in the rate of tax relief they get on their contributions.

By the time they hit £180,000 of income, they will get just 20% relief, the same as a basic-rate taxpayer.

Darling said this move would cure an 'anomaly' under which rich people benefit from a higher rate of tax relief retirement plans than basic-rate taxpayers.

But it is hard to see why this anomaly only applies to people who earn over £150,000 and will from 2010 pay 50p tax.

What about the savers who pay tax at 40p in the pound?

The widespread suspicion is that this move is a staging post towards the abolition of all higher-rate tax relief on pension contributions, moving everyone to a flat 20p top-up.

Such a move could yield £7bn a year to the Treasury according to calculations from the Institute of Directors.

Meanwhile, higher earners will be doing everything they can to dodge Labour's new tax on pensions. One obvious way is to ensure that you keep your income below £150,000, and ask your employer to pay more into the plan instead of giving you a pay hike.

Others may simply decide to work less, emigrate, or save in other ways, such as through Isas. But as financial advisers Hargreaves Lansdown point out, the Treasury is scrambling to close loopholes well before the reforms come into effect. For instance, HM Revenue & Customs will start taxing wealthy people on their employers' contributions to company schemes, as well as their own personal payments.

This could cost high-fliers over £10,000 each, Hargreaves Lansdown estimates, sounding the death knell for many final salary company schemes. Of course, it is difficult for most of us to get too teary about tax crackdowns on Britain's rich and famous. After all, there are only 350,000 or so who rake in £150,000 or more a year in pay.

But there is no reason to think a desperate Treasury will stop here. Virtually the first thing Gordon Brown did on taking office was to launch a multi-billion assault on pension schemes by removing tax relief on share dividends. Labour's latest raid sends a clear signal that pensions remain an easy target for a desperate Exchequer. Stuart Adam of the IFS said yesterday the government is failing to create a 'stable environment' to plan your retirement. That is a huge understatement.

Friends departed

ITV executive chairman Michael Grade last month said he wanted to bequeath a company that 'at last is beginning to grow' when he hands over the remote to his successor. As he steps down early, there is precious little evidence that he achieved his goal.

Although stable, ITV's market share remains stagnant, and profits are expected to sink to a pitiful £50m before growing glacially. On one level it is not surprising the broadcaster is struggling. The hyperfragmented digital market is leaching advertising revenues from ITV. With credit markets frozen, ITV's £730m of debts hang around directorsnecks like a millstone. But ITV's woes are not all down to outside factors. Investments like Friends Reunited have gone awry.

And despite its prime position on the dial, ITV is simply not generating enough hits. The way to compete is by winning viewers over with quality programming, not resorting to revenueraising late-night quiz programmes. Despite his undoubted talents, Grade has done ITV shareholders no favours. Dropping the reins was the decent thing to do.

Micro management

Labour is doing its best to give Wednesday's gruesome Budget the hard sell. A 'microsite' has been launched on the Treasury home page featuring 'twitter' updates from Yvette Cooper, the chief secretary. Next to this tempting offering is a link to a 'fly on the wall'- style YouTube clip of Alistair Darling doing his last-minute preparations for Budget 2009. Turning to the camera, he informs an expectant nation that the Budget will build on Britain's 'underlying strengths'. It will take more than a video soundbite to convince us of that.

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