Actually I have to wait until next year before I can unlock the next egg of my private pension. Mirroring my career path, or lack of it, my pension provision is a bit of a mish mash. I have two company, ‘defined benefit’, or ‘final salary’ scheme pensions. It would have been three but I managed to transfer contributions from my first job, into my second pension scheme in a fit of uncharacteristic efficiency in the early 1990s.
Then I have a small, very small private, ‘defined contribution’, pension from my time with Tiger11. Next year I can cash it in, but all the advice in the media is … don’t.
It’s all rather strange. The government herald this change as a great step forward, but if you listen to Money Box or other consumer programmes they are full of warnings. It’s the tax implications that are the complicating factor.
In order to encourage us to save for our old age, successive governments have made pension contributions tax-free. So now if you cash in your pot instead of using it to buy a pension, you have to pay the tax. Not such a great freedom, then.
So why have they made these changes? It seems to me that like much personal tax law, these changes are actually to benefit the rich. There will be some ordinary people who can usefully move their savings away from a pension, pay the tax and spend the remaining money on something that will benefit them. But for 95% of us it is more financially advantageous to buy an annuity, just like we were always going to.
Rich people can afford to lose some security from a pension they won’t depend on in order to move their money around to something more profitable. Avoiding tax on pension contributions is one thing, but perhaps a tax break to invest in films, or buying part of the new Surrey oilfield gives a better return.
The rich have special people to help them, they are called tax lawyers. I met one once, he was very well-fed and wore a very nice suit – pin stripe, of course. He clearly made a good living from knowing his way around HMRC’s rules and regulations. He was helping my employer build social housing, but his manner chilled my blood. Amongst many other japes he suggested registering a new company offshore to avoid stamp duty. On this occasion he was trying to help us do something positive, but it was clear he spent most days helping rich people avoid paying their fair share.
In this election one party (he said, neutrally) has proposed scrapping the non-domicile tax status. The so-called Non Doms are not taxed on their overseas earnings. This may seem reasonable at first sight, but what it means is they spread their money around the world, putting it wherever the tax rate is low, whilst they carry on living in Britain. You can tell how rich these people are because they have to pay for the status, about £90,000 a year. In other words the scheme must save them £90,000 a year in tax to be worth their while.
I don’t know about you but I can’t imagine earning £90,000 a year, let alone paying that much tax.
And then there’s the way tax is collected. There are a few oddballs like me who find themselves ‘self-employed’ thanks to the last (current?) recession plus of course small business people, who have to fill in a self assessment forms and pay our tax 12 months in arrears. The vast majority of South Leeds folk pay through PAYE, pay as you earn, straight from the pay packet.
It is a better way to pay your tax, but here’s the thing. On PAYE you don’t get the chance to come up with imaginative ways to ‘reduce your tax liability’. Tax avoidance is a game for the rich.
I’ll be back next week with more of my views from South of the River. If you’re on Twitter, you can follow me: @BeestonJeremy.