THE £50,000-a-year cap on pension contributions, frozen until 2015, is a more punitive attack on pensions than former Labour chancellor Gordon Brown’s infamous raid on defined benefit schemes, says Chris Noon, partner at Hymans Robertson.
Noon says the changes, introduced by chancellor George Osborne, are more pernicious and more visible than Brown’s because they will be felt by individuals rather than trustees and employees.
Brown’s abolition of tax credits for pension funds is credited with diminishing pension funds by around £5bn a year, and has been criticised by many industry professionals as being one of the worst acts of destruction to the UK pensions sector.
Osborne’s changes are expected to net the Treasury £4bn a year. The current rules are a reworking of a tax levy originally proposed by former Labour chancellor Alistair Darling, designed to bring in an identical amount of revenue to the Treasury.
Noon says: “This tax change is more punitive than Gordon Brown’s much criticised tax raid on pensions. This is a more overt raid, because it is actually taking money off people who pay more in. Gordon Brown’s raid on advanced corporation tax, on the other hand, only affected those in DB schemes and did not directly impact the man in the street. With this change, individuals today when they get payrises will receive tax bills that they will feel right now.
“Some people’s pension input periods mean they are already affected by this change. There are going to be around 100,000 people affected and that will be doubled by 2015.”
John Lawson, head of pension policy at Standard Life, says: “The difference is today you have got a government dealing with a massive deficit. Back in 1997 when Brown brought in his changes we were in a much healthier position. This is about ’needs must’, that was about funding thepublic sector by the back door.”