HOW MONEY MAIL SAVED YOUR PENSION
Victory for Money Mail as Osborne backs away from a vicious tax raid. Now we say...
MONEY MAIL has won a stunning victory in the battle to stop a savage tax raid on your pension.
After seven weeks of the Save Our Pensions campaign, George Osborne has finally caved in and dropped his assault on savers.
There will be no cuts to pension tax relief ‘at all’ in the Budget next Wednesday, Government sources have confirmed.
Cynics think the Chancellor has simply delayed the inevitable, so today we call on him to keep his word. If he does we can reveal that it will help boost pension pots by as much as £75,000 each over the next two-and-a-half decades.
The climbdown is a major boost for all savers — and it’s thanks to the tremendous backing you gave our campaign.
Senior Government officials have told Money Mail that the Chancellor was on the verge of abolishing the tax breaks on pensions before we intervened.
He was going to introduce a completely new system called the ‘Pension Isa’ instead.
The perilous plan would have ended today’s tax relief perk for both higherand basic-rate taxpayers. Currently, you pay no tax on earnings you put into pensions. It helps turbocharge the returns — and many savers pay only a small amount of tax in retirement.
Under a Pension Isa, you would for the first time have paid tax on any income stowed away for old age. The new upfront tax would have created an immediate windfall of up to £34.3 billion for the Treasury.
To soften the blow, Mr Osborne was going to promise that all withdrawals would be tax-free in retirement. Currently you can take 25 pc tax-free as a lump sum when you retire, with other withdrawals treated as income by HM Revenue & Customs.
Over the past two weeks, ministers have held lengthy meetings to thrash out the plan.
But Mr Osborne eventually decided it was safest to bring the discussions to a halt. Insiders say he took to heart warnings in Money Mail about the terrific backlash he’d face from Tory voters and backbench MPs.
In a series of articles, we explained just how damaging the changes could have been — and you wrote in with support, saying you’d never vote Tory again if Mr Osborne launched the raid.
In one investigation we found that a basic-rate taxpayer saving £250 a month would have been £36,609 worse off after 25 years with a Pension Isa.
A higher-rate taxpayer would have missed out on £ 73,217, presuming a 5 pc annual investment growth. Our calculations also showed that would have left them with a horrible choice i f they wanted to keep their retirement dreams on track.
Higher-rate taxpayers would have had to work another seven years, or paid an eye-watering £345 a month into their pensions, to plug the gap. A basic-rate taxpayer faced a bill for £148 a month to get the same from a Pension Isa as they would today.
In a statement, an ally of Mr Osborne said: ‘Now isn’t the right time, with uncertainty in the global economy and reforms such as autoenrolment still bedding in, to turn things on their head.’
Those words have left some people wondering whether the Chancellor thinks he can reform pensions at a later date.
Money Mail urges him to drop the Pension Isa plan for good.
Steve Webb, the former pensions minister and now director at insurer Royal London, believes the tax-free withdrawal pledge with a Pension Isa is a ‘con trick’.
First, he says, it would kill off the 25 pc tax-free lump sum. For many people this is the best thing about pensions: it allows you to avoid all tax on a quarter of the money in your fund.
Moving to a Pension Isa would force you to pay tax before you’d even started saving for retirement.
Second, about 7.5 million basic-rate taxpayers would lose a vital extra perk under the Pensions Isa.
This is because they already get tax-free ncome in retirement, according to Mr Webb. Many are women who pay basic- rate tax while working but nothing in retirement because their income is below the £11,000 personal allowance threshold.
Moving to a Pensions Isa would simply have meant that they lost their 20 pc boost when they paid in. Most middle-class workers earning more than £42,385 would miss out, too, because they typically pay only basic-rate tax in retirement.
And there would be no guarantees against cash-s trapped future governments taxing withdrawals. That would mean savers being taxed twice on the cash in their pension funds.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, says any hint of political interference would lead to a ‘ Northern Rock- style run on retirement funds’, with billions being withdrawn overnight.