The ConDem government has launched a new web site — called Your Freedom — that is dedicated, it says, to scrapping unnecessary laws.
I think there are a considerable number of laws that threaten my future liberty by preventing the collection of proper taxation payments from those who owe them, so meaning I and the rest of the population of this country will have to suffer cuts in services we can ill afford. I’ve already suggested a couple; here’s my next.
I’d simply abolish higher rate tax relief for pensions.
let’s be honest — pensions are just a savings scheme. That’s it: no more, or less. And it beats me why the savings of most of the richest in society (and I know about the new cap for the very wealthy) should be subject to double the rate of tax relief as all the rest in society — especially when it is estimated that this costs at least £9 billion a year.
When austerity is needed the savings of the rich do not subsidy. This is one law that definitely needs to be axed.
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@Robin Atkins
Why – did I disagree with your point of view ?
@Robin Atkins
You were contemptuously rude
That did not constitute a contribution to debate
This comment has been deleted. It failed the moderation policy noted here. http://www.taxresearch.org.uk/Blog/comments/. The editor’s decision on this matter is final.
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I don’t wholly disagree with your assertion that pensions are just savings (although they are part insurance), but I disagree with the principal of limited relief for pensions contributions unless the limitation is compensated by a lower taxation when the pension is received, otherwise the pension is effectively taxed twice.
Imagine a 0% interest world: higher rate tax payer receives 100 of income which will be contributed to a pension fund, paying tax on the income receipt subject to restricted relief, so net tax is payable. Assume further that the pension is all paid out at the higher rate, then assuming that the tax payer receives pension payments of equivalent economic value to their contributions then tax will be payable on the 100 pension at the higher rate, and is thus effectively taxed one and a half times.
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@Alex
This seems a very trivial point to make about fairness in taxation. If they don’t like paying this extra tax (ie not getting the extra allowance) which they can well afford to sacrifice, the super-rich have the option not to pay into a pension at all. The govt seeks to encourage the general populace to contribute to a pension scheme so they will not be dependent on the state in retirement. The rich can look after themselves.
Are pension contributions a simple savings scheme, or are they a means of deferring income to retirement?
Not sure why you are muddying the water. After all you are not suggesting here that all pension contributions tax relief should go
@Carol Wilcox
There are very good reasons to uphold fairness in taxtion and in particular to be seen to apply the rules in a largely balanced way, the most obvious being that if you discriminate against the rich they will invariably either take their assets elsewhere.
Depnding on the particular arrangements there are good arguments that payments into a pension fund are not income of the pension holder because he/she has no rights over the money until the pension is paid out, and if they die aged 64 1/2, they receive nothing, hence any tax on their contributions would be iniquitous in principle, and generally principle matters, even when dealing with rich people.
“Are pension contributions a simple savings scheme, or are they a means of deferring income to retirement? ”
They aren’t simple savings, because capital drawdown from savings has no tax penalty, whereas withdrawing capital from a pension is taxed as income (although upon retirement 25% of the fund can be withdrawn tax-free under current rules). Savings are also unencumbered by age restrictions, drawdown limits, and so on.
Given that there are several vehicles that allow savings to grow tax free (National Savings, ISAs, etc.) like pension funds, it’s not clear to me which is the more efficient way to provide for retirement. I think I will do some modelling.