Birmingham Conference Diary - George Osborne on Pensions
There was so much in the chancellor's speech this morning that it justified more than one post, so this is the second of three.
Probably the worst of Gordon Brown's many disastrous mistakes was the £6 billion a year raid on pension funds. This was the biggest reason why, as even the more intelligent Labour politicians such as Frank Field MP recognise, having inherited one of the strongest pensions positions in Europe Labour reduced Britain to having one of the worst.
I would love to see that £6 billion raid on pensions reversed, but when you need to cut spending or raise taxes by a net £25 billion a year - that's the official Treasury view of the structural deficit - scrapping a £6 billion a year tax is not easy to do.
But we do need to find clever ways to increase incentives for people to invest in pensions. Giving people more control over their own pensions was an excellent start. Dramatically scaling back or scrapping the tax clawback on leaving your heirs the remains of your pension pot when you die, which the chancellor has done with effect from today, is particularly clever because the benefit it will give to savers may be much larger than the cost to the exchequer.
It is very rare that a chancellor can create wealth at the stroke of a pen by introducing a measure which benefits the public more than it loses the government in revenue, but if it shifts behaviour as I believe this will, you can do it.
The loss in tax paid to the exchequer will be, at worst, the difference between the amount raised by the current rate of tax on the pension pots currently being left, and what would be brought in by the greatly reduced rate with the same level of inherited pension pots.
But if the increased incentive to invest in your pension - in the form of a reduced risk that more than half will be grabbed by the taxman rather than going to your heirs - leads people to be more confident about this form of saving, and means more money invested in pension funds, the benefit to those heirs will be the difference in tax on a much larger volume of money.
Not such good news, perhaps for firms who sell annuities and may have to come up with a more competitive deal. Great news for those saving for their pensions - and their heirs - because that too means they have a better deal on offer.
Probably the worst of Gordon Brown's many disastrous mistakes was the £6 billion a year raid on pension funds. This was the biggest reason why, as even the more intelligent Labour politicians such as Frank Field MP recognise, having inherited one of the strongest pensions positions in Europe Labour reduced Britain to having one of the worst.
I would love to see that £6 billion raid on pensions reversed, but when you need to cut spending or raise taxes by a net £25 billion a year - that's the official Treasury view of the structural deficit - scrapping a £6 billion a year tax is not easy to do.
But we do need to find clever ways to increase incentives for people to invest in pensions. Giving people more control over their own pensions was an excellent start. Dramatically scaling back or scrapping the tax clawback on leaving your heirs the remains of your pension pot when you die, which the chancellor has done with effect from today, is particularly clever because the benefit it will give to savers may be much larger than the cost to the exchequer.
It is very rare that a chancellor can create wealth at the stroke of a pen by introducing a measure which benefits the public more than it loses the government in revenue, but if it shifts behaviour as I believe this will, you can do it.
The loss in tax paid to the exchequer will be, at worst, the difference between the amount raised by the current rate of tax on the pension pots currently being left, and what would be brought in by the greatly reduced rate with the same level of inherited pension pots.
But if the increased incentive to invest in your pension - in the form of a reduced risk that more than half will be grabbed by the taxman rather than going to your heirs - leads people to be more confident about this form of saving, and means more money invested in pension funds, the benefit to those heirs will be the difference in tax on a much larger volume of money.
Not such good news, perhaps for firms who sell annuities and may have to come up with a more competitive deal. Great news for those saving for their pensions - and their heirs - because that too means they have a better deal on offer.
Comments
we never spent it before "HWSNBN" messed it all up, so why do we need to spend it after. why not just say no we aint gonna take it, but its ok as we aint gonna spend it either?