Is the OBR’s report into the consequences of the salary sacrifice cap enough to persuade the government to change course? Pensions Expert editor Nick Reeve hopes so.
Who’d be a government minister at the moment? The economy is struggling, geopolitical tensions are rising, and a numerical strong majority is, in reality, anything but. (I will carefully sidestep any mention of other things that may be occupying senior ministers this week.)
It’s perhaps unsurprising that technical policy details relating to pension taxation aren’t at the top of the agenda in Downing Street offices – but, I’d argue, I really think they should be.
This week saw the publication of a new Office for Budget Responsibility (OBR) report into the potential impact of the decision to cap salary sacrifice for pension contributions at £2,000 a year. It added important data to back up the warnings we’ve been hearing for much of the past year about what this kind of policy could do to broader pension coverage.
It cannot be a goal of pension policy to reduce wages, contributions, or both, as the OBR’s report warns. Nor can it be a goal to cause widespread reviews of pension arrangements that will disadvantage low earners. At a time when the Pensions Commission is working to find ways to address inequalities, increasing them seems at best inadvisable.
The OBR’s report came hot on the heels of a House of Lords committee report that criticised the government’s approach to levying inheritance tax on unused pension pots. It reiterated concerns voiced across the pensions industry that this could cause major delays and significant stress and hardship to families at what is often the worst time in their lives.
In both cases, the government’s approach seems wrong-headed. Policies that aim to tax high earners will have major consequences for many people whom policymakers say they do not want to target.
Frustratingly, these consequences seem obvious. But no amount of industry lobbying seems to have swayed the government’s approach to either. Is this arrogance? Ignorance? Stubbornness?
Perhaps there is even a suspicion from some policymakers that the pensions industry is trying to avoid doing something difficult. But to believe this would be to ignore the concept of fiduciary duty. While this is primarily about ensuring members’ financial interests are upheld, the principle permeates the pensions sector far beyond investment strategies. Those calling for change to salary sacrifice or IHT plans are almost always doing so from a ‘member first’ perspective.
As journalists, we love a good ‘U-turn’ on policy as there are always plenty of people to quote as saying ‘I told you so’. To all ministers reading this, if you successfully back a U-turn on either of these policies, I promise not to boast of having told you so.
Nick Reeve is editor of Pensions Expert.
