David Prosser: Pension funds should be a tempting target if the Chancellor wants to be progressive

 

There are just four weeks to go to his autumn statement, and the Chancellor needs all the help he can get with ideas for hitting borrowing targets that look increasingly challenging, given the way economic growth continues to disappoint.

One contribution definitely worth considering comes from Centre Forum, a think-tank with close links to George Osborne's Liberal Democrat Coalition partners. It proposes a restriction on pension tax breaks – the challenge for Mr Osborne would be to explain why such a policy, characterised in the past as an attack on middle England, is actually more of the "we're all in this together" kind of thinking.

The tax break that really irks the think-tank is a popular one: the option for those with private pensions to take up to 25 per cent of their funds as a tax-free lump sum on retirement.

The cost of that relief is £2.5bn a year, according to HM Revenue & Customs – Centre Forum thinks some of the money should be clawed back by making lump sums taxable above the higher-rate income tax threshold at the full 40 per cent rate.

The effect would probably be that that many higher-rate taxpayers opted to take a smaller lump sum on retirement, choosing instead to buy more annuity income with their funds. Since these pensions are taxable in the normal way, the tax take from retirement annuities would be higher in future, perhaps by as much as 5 per cent a year, according to the think-tank.

It is a powerful argument. Wealthier savers do receive a disproportionate share of the billions of pounds spent every year on pension tax breaks – not least because they also get higher-rate relief on pension contributions. And while there have been some attempts to curb the cost of these reliefs, chiefly by imposing a lifetime limit of £1.5m on private pension funds, it is still possible, on retirement, for someone to take as much as £375,000 from their savings without paying a penny of tax.

The Chancellor would need to tread carefully. The tax-free lump sum is one of the most important reasons why people choose to save for old age via private pensions rather than, say, an individual savings account where their money otherwise gets the same level of tax relied but is not locked up. In that sense, it is a useful incentive.

Still, those who would be affected by such a move would still be entitled to take, at today's thresholds, more than £40,000 as tax-free cash on retirement. And they are likely to be the sort of people for whom Isas do not provide sufficient investment allowances for their retirement savings.

Moreover, this would be a progressive tax reform. Too many of the Government's attempts to raise more tax have been regressive – look at yesterday's VAT figures from the Office for National Statistics, for example.

 

Diamond continues todefy expectations

It is the arguments about regulation that tend to make all the headlines but for Bob Diamond, the chief executive of Barclays, the refusal of investors to buy his bank's story has been as big a frustration as his run-ins with reformers. The stock market has consistently failed to accord the bank the rating its performance has deserved, let alone to value it on the basis of the targets set publicly by Mr Diamond.

In particular, the Barclays boss's promise in June to raise Barclays' return on equity to 13 per cent by 2013 – it is 8 per cent today – was met with scepticism. And yet the bank continues to surprise on the upside.

Yesterday's figures were no exception: the strong performance of the retail operations, the further cost reductions and the falling bad debts all exceeded expectations. There will be no new capital raising, Barclays insists, and exposure to the eurozone has been pared back.

Even the disappointing bits of Barclays' update came with silver linings. Barclays Capital may have been the only part of the bank to perform less well than in the same quarter of last year, but it has outperformed rivals such as Goldman Sachs. And the dip in profits does at least mean Barclays will be paying lower bonuses this year (despite putting a little more of its revenues aside for compensation), which is handy politically. So, too, is the fact that it is on target to hit its lending promises.

The results also undermine the arguments of those who believe Barclays' days as a universal bank may be numbered. Not only would splitting out BarCap be more damaging to the retail bank than one might imagine – the businesses are interwoven – but the two operations are currently working as useful counterbalances.

Will Mr Diamond hit the magic 13 per cent? It is going to be difficult if the global economic outlook continues to deteriorate. Even if he only gets close, however, the market will owe Barclays a very generous re-rating.

 

Do as we say on pay, but not as we do

Why do institutional shareholders not complain more loudly about excessive executive pay at the companies in which they are invested, as highlighted again by Incomes Data Services last week? One reason may be that they fear being charged with hypocrisy.

Data published yesterday by PwC reveals that European fund managers' remuneration has risen by an average of 18 per cent over the past year. On the whole, the more senior the fund manager the larger the increase has been.

The explanation given for these whacking pay increases will be familiar to those who follow the debate about executive rewards. Competition for the best fund managers is both cut-throat and global, we are told.

That may or may not be the case. But it is hardly surprising that fund managers aren't making a fuss about the executive pay gravy train – they appear to be passengers on it, too.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat