The has threatened further restrictions if it sees evidence of widespread abuse of the tax loopholes in the post-April 2015 system, but has told MPs it believes the £10,000 reduced annual allowance strikes the right balance between flexibility and restricting avoidance behaviour.
Answering questions to the Taxation of Pensions Committee yesterday, financial secretary to the Treasury David Gauke MP refused to answer questions as to his understanding of the scale of the potential loophole, or of the scale of abuse that would be needed to trigger further restrictions on the pension freedoms, saying the Treasury would publish revised figures in the Autumn Statement.
Gauke said there would not be a specific report to Parliament on its monitoring of the level of tax and NI leakage.
Gauke said: “We will be setting out estimates in terms of all the measures and decisions that we have taken at the autumn statement. The OBR will verify that. It is fair to say that a number of assumptions were made in the analysis to which you refer, which we think are somewhat unlikely. We have sought to retain a balance between addressing the recycling concern and fairness to those who have accessed their pension flexibly. In a world of more flexible retirement, which I talked about a moment ago, where people may wish to retire and take one pension, but then to take another job and contribute towards a pension in that job, the idea that we should have a zero annual allowance and say that anyone who has made use of these flexibilities should no longer be able to contribute towards a pension, would be unfair.
“We have sought to balance the two competing objectives of fairness for those who have accessed their pensions flexibly but wish to continue to contribute, with fairness in ensuring that this does not create a tax loophole, which is expensive to the general taxpayer.
“We will continue to monitor this. If we see evidence of further abuse in this area, the Government have been very clear that they will take further action in this area. However, we believe that the route that we have got to— the restriction to £10,000 for people who have accessed their pension flexibly—strikes the correct balance.
“I do not think there is an intention to have a report on a specific occasion. What I would say is that, clearly, the Treasury and HMRC would want to monitor any fiscal risks. If we identified this as something that could cost the general taxpayer significant sums of money, that is something we would want to address. Of course, it is always open to Members of Parliament to table parliamentary questions and so on, but it is clearly in the interests of the Treasury and the general taxpayer to ensure that this is not something that is exploited in such a way that we see an acceleration in the cost, in which case the balance would shift, and the Government would seek to take further action.
“As I say, we will set out all the numbers at the autumn statement—numbers that have been analysed and verified by the Office for Budget Responsibility. That system is, I believe, an improvement on what was there before. We will set that number out once the OBR has had an opportunity to evaluate it and place it in the context of the other policy changes that have been announced in this area since the March Budget.”