Minister's pension tax-relief figures just don't add up
Steve Webb's idea of a 30p flat rate makes me question his maths - or his motives
Personal Finance Editor
Saturday 26 April 2014
Steve Webb, the pensions minister, seems to have undergone a road to Damascus conversion. A few years ago I proposed to him at a dinner the idea that we ought to move to one rate of tax relief on pensions contributions which should lie between the current basic and higher rates of relief.
The minister shook his head and said he thought the idea was a non-starter as well as another idea I had to free up pensions so people no longer had to take out an annuity.
Now it seems Mr Webb is coming around to the idea of equalising tax relief on pension contributions.
However, considering he has had so long to think about it, I question his maths. Mr Webb says he would like to see a flat rate of 30p relief. But the actuaries I have spoken to on this issue are fairly clear because basic-rate taxpayers vastly outnumbers those subject to the 40p rate there is no way that - unless the tax giveaway is far greater than at present - that 30p is doable. In fact a figure closer to 25p in the pound in tax relief is the point at which the sums add up.
I suspect that Mr Webb is feeling increasingly irrelevant as pensions minister. He had his moment in the sun at the start of the Coalition Government piloting through key legislation, but his raison d'etre was stolen by the Treasury.
Take the radical reform of annuities for instance. At the time of the Budget he did his best nodding Churchill dog impersonation in the Commons, but was his heart really in it; did he feel even a little bit awkward, sidelined perhaps? After all, his policy hobby horse of the last year, the frankly strange and esoteric idea of "defined ambition" - in effect getting companies to take back the pensions liability they have been furiously shaking off for the past 15 years - has got absolutely nowhere, with puzzlement among employers and a degree of patronising head-shaking at the Treasury.
Perhaps I do Mr Webb an injustice, as he is in my view a good man who did a decent job in his first two years in post, but the sudden talk of equalising tax relief - with frankly over-optimistic maths - makes me wonder if this could be an early policy kite for the elections as well as a bit of an ego trip.
Online code a good first step
It is easily done, making the wrong payment online.
All you need do to send your money to the wrong place is get a digit wrong on the account number or sort code. An error made in an instant can take weeks to sort out as banks have been reluctant to cancel transactions and refund cash, worried that less-scrupulous people will abuse the system, calling back payments for goods and services received.
But from next week a new voluntary code will come into force which has been signed by the likes of Lloyds, HSBC, Nationwide, Barclays, Santander, the Co-operative Bank and NatWest, promising to act on a case of wrong online payment within two days.
This strikes a good balance taking a little of the stress and worry out of the process for the customer but yet allowing enough opportunity to double check that the claim is genuine.
There is, though, one problem and that is the new code doesn't guarantee customers will receive a refund. This could mean that less-honest recipients could high tail it with the transferred cash. Although the chances of that are very remote it will still cause anxiety.
The banks have made a good first step with this code, but it doesn't go far enough. What's more, there are some banks which are not signed up from day one but pledge to come on board later this year, why the wait?
Another costly deadline looms
Every month seems to bring another tax deadline.
As April rolls into May it is the turn of laggards from the 31 January self-assessment deadline.
The 710,000 people who failed to meet the 31 January deadline have already been fined but if they don't pay up and ensure their returns are in by the 1 May they could face more swingeing penalties of anything up to £900.
So the message is clear: if you are one of these non-fillers it is time to get in that tax return.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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