Prime minister David Cameron's policy-laden speech to his party's conference today put this week's abolition of the 55 per cent pensions inheritance tax at the heart of its message to core voters.
For the second time this year, it has not been the most impressive communication effort for the Tories' pensions policy. The annuity-busting Budget promised free, face-to-face advice that quickly turned into 'guidance' that was free, but not necessarily face-to-face and definitely not advice.
This time, there was a little bit of a gloss-over on the 45 per cent tax charge that would, at least until 2016/17, be levied on any lump sum that was passed to beneficiaries if a person died after age 75.
And three days after the announcement the Treasury was still explaining the limits of the policy, to the bemusement of the Twittersphere:
@JosephineCumbo is this what policy on the hoof looks like?
— Will Aitken (@WillJAitken) October 1, 2014For the second time this year, it has not been the most impressive communication effort for the Tories' pensions policy.
The annuity-busting Budget promised free, face-to-face advice that quickly turned into 'guidance' that was free, but not necessarily face-to-face and definitely not advice.
This time, there was a little bit of a gloss-over on of the 45 per cent tax charge that would, at least until 2016/17, be levied on any lump sum that was passed to beneficiaries if a person died after age 75. Hardly abolishing a death tax.
And three days after the announcement the Treasury was still explaining the limits of the policy, to the bemusement of the Twittersphere.
@JosephineCumbo is this what policy on the hoof looks like?
— Will Aitken (@WillJAitken) October 1, 2014Whatever the exact bounds of the offer, the policy will indeed provide some kind of an inheritance tax cut via another means. The pensions industry should welcome incentives to save, but there is no denying the political motivations behind the move.
Again the Conservatives have used pensions reform to demonstrate that they are on the side of hard-working savers. In many ways, the defined contribution pension scheme is a perfect Tory-style benefit. What you get out is directly related to what you put in, and the individual takes on all the risk.
The effect of this year's reform has been to turn a DC pension from a source of income, limited by tax rules and market value, into a pot of cash to be dipped into and passed on. Both paradigms have their drawbacks: in George Osborne's new world, greater security has been jettisoned for personal choice.
At least we can be heartened there does not seem to be signs of an imminent march out of defined benefit schemes to join the party.
Unpicking the personal allowance/AE link
On a side point, any increase in the personal allowance will again raise the question of the lower limit for auto-enrolment eligibility, which has been linked to this level by the current government.
The Labour party has promised to lower it, while the effect of the annual £12,500 personal allowance, if the link was kept, would pull another tranche out of AE eligibility.
If so, it would be time to at least uncouple these two measures before more people get dumped out of the AE population. This debate should, and will, continue.
