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
Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
tvExecutive says content is not 'without any purpose'
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
PROMOTED VIDEO
Sport
sportLeague Managers' Association had described Malky Mackay texts as 'friendly banter'
News
A polar bear’s diet is rich in seal blubber and half of its own body weight is composed of fat
i100
News
peopleCareer spanned 70 years, including work with Holocaust survivors
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
people
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
News
London is the most expensive city in Europe for cultural activities such as ballet
arts
Arts and Entertainment
Jeremy Clarkson has rejected criticisms of his language, according to BBC director of television Danny Cohen
tv
Extras
indybest
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

Application Support - Enterprise Java, SQL, Oracle, SQL Server

£45000 - £55000 per annum: Harrington Starr: A well-established financial soft...

Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

Junior Quant Analyst - C++, Boost, Data Mining

£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape