Retirement

More Pension Changes Pledged If Minister Voted Back

More sweeping pension changes could be on the way if Lib Dem Pension Minister Steve Webb gets back into power.

Webb has been a driving force behind auto-enrolment workplace pensions, scrapping annuities and the new flexible access pension rules that start later this year.

Now, he is dangling another carrot in front of voters – this time he wants to scrap current pension contribution relief based on the tax rate savers pay to offer a fixed rate instead.

This will put an extra 13p for every pound saved in a pension fund for basic rate (20%) taxpayers, but cut the relief by 7p for higher rate taxpayers (40%) and 12p for additional rate (45%) taxpayers.

However, for putting them at a disadvantage, Webb wants to lift the £1.25 million cap on lifetime pension savings.

Pension giveaway

Higher and additional rate taxpayers are subject to paying tax on any pension savings that breach the lifetime allowance.

Effectively, he wants the Lib Dem manifesto for the May General Election 2015 to offer pension contribution relief at 33% for everyone – which means for every £2 saved, the government will top up a pension pot with an extra £1.

Although the changes look like a pension giveaway, Webb believes basic rate taxpayers would have more encouragement to save for their retirement, while top earners would gain less tax relief to pay for the extra relief going to low earners.

“This government has spent a lot of time pussyfooting around the issue of pension contribution relief and could not agree on how to do it,” said Webb.

Bad feeling

“Pension tax relief should be sorted out fairly for everyone.  With the plan I have outlined, everyone has something to gain, but if you do not abolish the lifetime allowance, I don’t think just reforming tax relief on contributions will work.”

Webb argued that he felt the current tax relief on contributions was weighted in favour of top earners because the more someone earns, the more relief they gain.

“Having the relief the same for everyone takes that bad feeling away,” said Webb.

Top earners can save up to £40,000 a year, but if their pension fund grows to more than £1.25 million and payments are taxed at 55%.

Webb and Chancellor George Osborne have overhauled the pensions system during the past five years by going head-to-head with financial providers to force them to give a better deal to consumers.

9 thoughts on “More Pension Changes Pledged If Minister Voted Back”

  1. Excuse me, but aren’t the people who have contributed to the state pension scheme also ‘consumers’? I always thought that paying for a described product (pension) meant receiving that described product – private pension or state. The government obviously thinks otherwise.
    While I was working, at that time there was no choice to dump the state and go private, so my compulsory pension fund ‘contribution’ was deducted even before i saw my cash. This was of course towards a fully indexed pension payable once I reached retirement age – or so the DWP said at the time.
    There was no reason to believe otherwise was there? I mean, politicians are very trustworthy people aren’t they??
    Full NIF contributions? Yes!! Full pension? Yes!! Fully indexed in line with inflation? Yes – but did you read the fine print? The fine print was so well hidden away that nobody knew of it. The fine print that said if you retired to a listed country, your pension would be frozen for the rest of your days.
    So be very careful of any carrot Steve Webb dangles. His reputation for U turns, for moving goal posts, for misleading statements and for concealing the truth is unparalleled.
    I’m not just saying this because an election is close. I’m not political, but I do care when someone (Webb) who stated his profound intention to ditch the cruelest policy Parliament has ever devised (frozen pension policy) and does absolutely nothing about it when he had the chance.
    To maintain & entrench the ability to freeze the state pension of any recipient – anywhere in the world – at the whim of government – by means of Section 20 in the new Pension Act is nothing short of disgusting and betrayal in the extreme.
    To continue this world-hated policy that “freeloads” on other countries is abhorrent, and flies in the face of traditional British fairness. Seems like that too has gone out of the window!

    Reply
      • While individual MPs and prospective candidates may have promised to pursue the cause I don’t think any of the main parties promised anything concrete.
        The reason I say this is that the Carson v. UK government case was progressing through the courts from about 1997 until the final ruling by the ECHR Grand Chamber was published in March 2010 – just two months before the last election. It was unlikely that either of the two main parties, and especially Labour who defended the government’s position, would risk pre-empting that decision which could have worked against them.

        Reply
        • There are pensioners groups right across the world, and the leaders of all of them got in touch with the different parties and all promised to do something about it, then just stopped answering the requests once elected.

          Reply
          • Can you, please, advise the names of some of these groups as I have no recollection of, for example at the last general election, either of the two largest pensioner organisations in Australia , BPiA and BAPA, or the major one in Canada, the CABP, receiving such promises.
            Indeed the Internatıonal Consortium of British Pensioners, which encompasses BPiA and CABP and is supported by other smaller groups, has been and remains in constant contact with both government and opposition parties. Their last meeting with them was just before Christmas but, as yet, none has said it will do something about the frozen pension policy.
            However, the Treasury now hold the “Cost and Savings Analysıs of Unfreezing Pensions” and which shows that the potential savings to the UK economy far outstrip the cost of index linking. .

          • Our’s are all foreign groups. Mine is a very small one based in Ukraine and some of the baltic countries. The individual groups get in touch with those that could lead the country, usually in a letter and get the answer the same way. It doesn’t make the news. I’ve written to Cameron on several occasions directly to Downling Street on other subjects and it never makes the news. It costs them more in the long run not to unfreeze pensions. It costs more per person if they give up and go back to UK because as they get older they have to have more medical care, more social money, help with housing etc.

  2. It’s all very well Steve Webb fiddle farting about with the pension industry while his own responsibility is in a mess with state pension needing to be functioning in a logical, democratic fair and just basis before any other consideration.
    He said that even Einstein would’nt understand it.
    It is quite simple but seemingly too difficult for Webb to sort out and when the Pensions Bill was reviewed and scrutinised he could’nt wait to get it over by wandering off topic and remark about someone scratching his head.
    I note that Ivor Needtosay has commented and put the situation about ‘freezing’ of the pension and the irresponsible inclusion of clause 20 to impose a freeze on future pensioners does nothing but make the issue even more confusing, irrational, illogical and contradictory not to mention the cost to government of doing so as hey have yet to understand that pension parity would be a financial bonus due to the many benefits in UK that the departing pensioner would now relinquish and stop the unlawful discrimination that is currently taking place being aimed it seems at the Commonwealth countries which are the very countries with which the government have a signed agreement to stop discrimination, notably the Charter amongst others.
    The mind boggles at the blind inconsistent attitude of the Pensions Minister who could not get rid of this policy fast enough when in opposition.

    Reply
  3. A somewhat arrogant approach from the Minister but which does not seem out of character.
    There is quite a rocky path to negotiate before he can continue his wrecking of the pensions system. First, he actually has to retain hıs seat – by no means a formality. The second hurdle is that his party will not have an overall majority and form the government so he must rely on the LibDems being a part of a coalition – then, thirdly, the coalition partners must decide on the format of the government and who is the best person to take on the ministerial role…..
    I suspect that at the end of this parliament, may also see the end of Steve Webb as Minister of Pensions, There are some 550,000 pensioners, whose circumstances Morgeo and Ivor Needtosay have already outlined, that Webb has discriminated against by condoning the frozen pension policy who will not shed a tear.

    Reply
  4. Just another election “promise” why would we take any notice of this one? Too many “promises” have been broken by politicians, except the ones that benefit them of course, for us to even bother to read about the next one. Webb has reneged on his pledge to end the frozen state pension scandal that affects just 4% of state pensioners, he has had ample opportunity to “do the right thing”, to use one of David Cameron’s favourite sayings, and all he has done in this regard is to ensure future state pensioners are denied their indexing based on just because of where they live even though they have paid their NI contributions over a lifetime. Why are mere politicians “in charge” of state pensions anyway? It is obvious they have no idea about how the majority of pensioners struggle to live on the lowest pension in the EU even those who have an increase can’t live on it let alone those who get nothing every year. Stealing from pensioners is a disgraceful and shameful way to treat seniors.

    Reply

Leave a Comment