Chairman Robert Graves sent a letter to all AMPS members on July 2 informing them that “we can no longer anticipate any change” to the Finance Bill, which entered its final stages on July 6, following a meeting with ministers and industry bodies. Graves said that the Treasury’s overriding policy objective was only fully revealed for the first time at the meeting.
He said: “I feel very aggrieved at the consultation process, in particular the lack of clarity about the real policy objectives of fiscal neutrality until the 11th hour. It is extremely disappointing that, despite the Treasury Select Committee report [and] the Lords Economic Affairs report being critical of the measures, and all sectors of the pension industry speaking as one, it is now highly likely that the measures will be implemented regardless.”
The Treasury is seeking to maintain current levels of tax-free contributions to an upper limit of £20,000 a year, with contributions to be no less frequently than quarterly, which it calls ‘fiscal neutrality’. Proposals to protect irregular contributions – such as those made by the self-employed – were rejected as they would increase the amount of tax relief granted for those making the contributions, the Treasury said.
Graves said: “From previous industry meetings with the Treasury we had understood that the policy objective of the anti-forestalling measures was to stop high earners from adjusting their contributions abnormally to gain full higher rate tax relief while it was still available… It was not to restrict people from carrying on their normal patterns of contributions.”
George Bull, head of tax at Baker Tilly, has warned that the anti-forestalling measures may backfire on the Treasury. Although the Treasury loses money by granting tax relief on pension contributions, it aims to claw some back through the £20,000 limit.
“This may be misguided thinking on the part of the Treasury as very few people seem keen to breach the anti-forestalling provisions,” Bull said. “Why bother, when tax relief now is only 20% and the eventual pension may be taxed at 40% or 50%? Perhaps there will be a net tax cost to the Exchequer after all.”
