RUTH SUNDERLAND: Don’t plunder our pensions, Chancellor of the Exchequer

Rachel Reeves is expected to report tomorrow on the catastrophic mess she wants us to believe the Conservatives have made of the economy. It is, of course, a transparent fig leaf for her plans for a multi-billion pound tax attack.

There is widespread fear that this will also lead to tax cuts for pensions.

Labour has taken shape: Gordon Brown’s shameful attack on pension fund dividend payments sounded the death knell for private sector final salary schemes, once the envy of the world.

Reeves has ruled out increases in the so-called Big Three – income tax, National Insurance and VAT – leaving her options for raising revenue limited and pensions looking like an easy target.

Ask anyone in the pensions industry and they will tell you that Treasury officials have long hated tax breaks on pensions, which benefit the highest earners. Removing them has a knee-jerk socialist appeal.

Under the current system, people receive tax relief on pension contributions at their highest marginal rate. For someone earning a six-figure salary and paying 45 per cent income tax, each £1 contribution to their pension plan would cost them just 55p. For a lower income earner with basic rate tax, a £1 contribution would cost 80p.

At first glance it seems unfair.

But it is thought that those Treasury officials are loath to take on higher pension cuts on grounds of cost rather than equity. Perhaps it is an urban legend, but they are said to have put a plan to get rid of higher pension cuts on the desk of every Chancellor of the Exchequer since George Osborne.

One option Reeves is likely to be offered is a 30 percent flat rate for general lighting. She herself has advocated the idea in the past. She shied away from it before the election, but she didn’t rule it out for good. She should have.

Not only would it be vindictive, harming around six million voters with an income of more than £50,000, it would also be counterproductive.

Any problems with tax benefits pale in comparison to a much bigger pension problem: the fact that almost four in ten people do not save nearly enough.

If the tax benefits are eliminated, the situation will likely only get worse.

This would be a particularly bad time to cut pension schemes, with millions of middle-income earners moving into higher tax brackets due to a years-long freeze on thresholds and allowances.

Attempts to limit pension tax breaks for the wealthy have perverse consequences.

We saw that with the lifetime cap on pension pots, with a 55% super tax on savings above the cap, which was abolished by Jeremy Hunt. Instead of generating loads of nice tax revenue, it encouraged valuable workers like senior doctors and head teachers to retire.

Labour has now wisely backed away from plans to reintroduce it. Attacking higher rates of tax relief could have a similar effect.

If less goes to people’s pensions, it will hinder Reeves in her mission to use the country’s pension funds to invest in much-needed infrastructure.

Ironically, the often-criticized complexity of pensions can thwart plans to eliminate higher tax breaks.

And Labour would suffer a major setback if NHS staff and civil servants were faced with huge tax bills on themselves and their employers’ contributions. Let’s hope that acts as a deterrent.

A pension pickpocket at number 11 is the last thing the country needs.

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