In his Budget the Chancellor is expected to announce a number of changes to pension tax relief. One of these was foreshadowed in the Conservatives’ Manifesto:
Pause, for a moment, and wonder at how a narrative is formed. We dis- and then re- aggregate from a bundle of tax measures, matching together cut and rise in a way that shapes the story we wish to tell the electorate. But what, here, is that story?
One narrative, that spelled out in the Manifesto, is that high earners should fund the ability of families to pass their home down a generation.
But another, on which the Manifesto is silent, is that the rewards from working are diminished to increase the rewards from not working. Leave aside the numbers: 332,000 people are expected to earn over £150,000 this tax year (Table 2.1). And they will pay more tax to enlarge the after tax pot available to be shared between the beneficiaries of (fewer than) 43,800 estates. So the rewards from the many will accrue to the few. But what is the story you tell the electorate when you diminish the rewards from work in order to enhance those available to be shared between people whose sole claim to them lies in an accident of birth?
If, as has been widely trailed, George Osborne tomorrow goes beyond these signalled changes to pension tax relief I will write more. Michael Johnson of the Centre for Policy Studies has advanced some radical suggestions in this report, including scrapping up-front pension tax relief. And his suggestions are said to be under serious consideration. However, that CPS report all but ignores the central question of whether such a change would encourage people to save more for their retirement or kick the can further down the road? Consider it in that light and it makes for rather less compelling reading.