TISA Talk

This briefing is intended to give an update on the continuing dialogue with HM Treasury and HM Revenue and Customs on the changes to tax relief for high earners announced in this year’s Budget, together with the “anti-forestalling” measures intended to prevent “abuse” before the changes are implemented in April 2011.

TISA is represented through me on the high level steering group established by HM Treasury to consult on implementation of these measures. Also represented are a range of industry and employer bodies such as ABI, NAPF, CBI and others. This body meets once a month, usually with senior officials present, but with occasional presence from Stephen Timms, Financial Secretary to the Treasury. The emphasis from government is on successful implementation of the measures as presented; given the complexity of the proposals and, in some instances, severe difficulty in operating them by market participants and consumers, the emphasis from our side of the table has been to suggest alternative methods of delivering the policy outcomes.

A minor “win” has been the raising of the proposed limit on “single” premiums, other than where supported by a regular “pattern” of contributions, from £20,000 to £30,000. We hope for movement on the issue of inter-scheme transfers soon.

However, many other issues remain unresolved and for the Defined Benefit community in particular, severe operational difficulties are presented, and uncertainty for employers and employees created.

Important principles also remain at stake. In particular, the principle that relief on pension contributions should be available at the taxpayer’s highest marginal rate and the preservation of the Annual Allowance (albeit at a reduced level) are salient here.

There is also emerging evidence that even those consumer groups not directly affected by these measures are becoming even more disengaged from pension saving in the face of the additional complexity presented by them in an already fiendishly complex regulatory environment.

No solution can be perfect, but we have suggested an alternative approach. This would retain the Annual Allowance and give relief at the taxpayer’s highest marginal rate, including the new 50% rate. It would also obviate the need for employer contributions on behalf of high earners to be taxed as a “benefit in kind”. Capable of swift introduction, it would also deliver the exchequer dividend required as part of the policy objectives and would obviate the need for anti-forestalling beyond the next Budget. Presentationally, it would still be seen to hit the highest earners.

In a nutshell, this proposal would be to reduce the Annual Allowance. We think this should stand at about £50,000 and modelling suggests that this would deliver tax take to meet the Treasury objectives. Treasury modelling suggests a limit of half this level would work; as we have been unable to have dialogue with their modellers so far, we are not sure of the assumptions they are using. Contributions beyond the new Annual Allowance would still be possible, of course, and would still be attractive in certain circumstances, but would obtain no relief at all beyond the Limit. This would be achieved by levying an Annual Allowance Charge of 50% on excess contributions.

Other bodies are aware of this suggestion and I’ll be seeking to build support for it before moving forward.

Please get in touch with me directly should you have any comments you would wish to make.

MALCOLM SMALL

I see there have been some stats released which indicate that fewer and fewer people are saving in SAYE or SIP schemes. One suggested reason for this downturn is that the interest rate has been cut, and now stands at just 0.54%. However, I can’t see this would be the only or even the main reason for not using these schemes if they are offered by an employer as the benefits appear to be much greater than just the rate of interest. Any thoughts as to why they are not more popular or what could be done to make them more attractive?

The claims by business groups, right wing pressure groups and opposition politicians that public sector pensions are unaffordable, out of control and produce easy immediate public expenditure savings are all myths, according to a new TUC briefing published today (Thursday 30 July) – see http://www.tuc.org.uk/extras/publicsectorpensions.pdf .
Are public sector pensions really unaffordable? There is indeed a growing gap between private and public sector pensions, but does this mean the public sector pensions should be cut or should private pensions be improved in some way? Apparently public sector pensions already cost less than state pensions and long term care, which are also set to increase as the population ages. So, where does an affordable answer lie?

TISA will be submitting a range of suggestions for consideration for the Pre-Budget Report later this year. If you have any opinions about key issues with the various saving and investment schemes; opinions about what you think we should be lobbying for, or ideas on changes you would like to see in the regulations on pensions, Personal Accounts, ISAs, CTFs, or Saving Gateway schemes, please let us know before 27 August.

Carol Knight

A colleague passed me a copy of The Economist for 27th June, which contains a fascinating series of essays on the effects of the ageing society, called The End of Retirement, in a 14 page special. There is basic good news – we are all living longer, and healthier, lives. However, there are all sorts of downsides. Not least is the need to address the issue of long term care. As we live increasingly apart from parents – 80% of care is still delivered at home by relatives even in OECD countries – the challenge becomes ever greater. There is a new Green Paper due out from the Department of Health next week on this topic, so look out for it. Meantime, more at www.economist.com

Malcolm Small, Director of Portfolio & Retirement Planning, TISA

Over the past few years TISA has been steadily increasing its training provision to both TISA member and non-member firms. Despite the current bleak economic outlook, especially in the financial services sector, which generally leads to the reduction in training budgets, attendance levels at TISA’s key ISA training sessions have been encouragingly positive and TISA would like to thank those firms and individuals who have supported the association in this area.

Moving forward, we would welcome views or comments from individuals who have already attended any TISA training sessions as to how we could improve this provision. We would also be interested to hear from firms or individuals who may like to see alternative courses provided that are not currently offered. Details of TISA training can be accessed via the TISA website here