The rich were howling this week after Gordon Brown spiked one of their scams to drain off even more tax relief for elite pension plans.
On 6 April next year (known as “A-Day”), a new tax regime for pensions will come in. The rich had hoped that they would be able to get huge tax handouts by hiding money tied up in second homes, fine wines and art works in their pension schemes.
On Monday Brown scuppered one element of this plan — and the rich went crazy.
Richard Meek, principal of Punter Southall financial advisers, raged, “This is extraordinary. Many people were led to believe this was definitely going to happen. Many people will have started to make financial plans.”
Of course such people have not complained at the massacre of final salary pension schemes in the private sector and the raising of the pension age, moves which have rather more fundamentally upset “financial plans”.
But in any case, Gordon Brown has left the wealthy with plenty of opportunities to fleece the rest of us. They will be profiting even more as most workers are looking at having to work longer and pay more into their pensions.
An entire 16-page supplement distributed with the Times on 30 November is devoted to the rich pickings after A-Day.
It lays out the “considerable tax opportunities for any household with large amounts of disposable income”.
It rams home how your financial adviser can deliver gilt-edged returns.
“You are aged 60 and wish to retire in 2006 and want to give your pension fund of £600,000 one final boost. You have £300,000 cash in the bank while your earnings for 2006-7 are £390,000,” reads one example.
Perhaps a few readers of Socialist Worker may see this as an unlikely scenario for themselves, but keep going.
“Post A-Day you will be allowed to make an unlimited contribution to your pension. This means that you could contribute, say, £300,000 even though it is above the annual contribution allowance of £215,000. Because your income exceeds the contribution you will benefit from 40 percent tax relief on the entire £300,000.
“The £300,000 contribution will be grossed up to £384,615 and you can then claim higher tax rate relief of £69,231. So the real cost of the £384,615 contribution is therefore £230,769.
“As an added bonus you can then take 25 percent tax free cash equal to £96,153, leaving you with ample cash in the bank, as well as a significantly larger pension to provide retirement income.” It’s magic!
Don’t worry about the details (that’s what your hired figure-fixer is there for), but you’ve doubled your money.
And it doesn’t stop there.
The same supplement enthuses, “Those over 50 will be able to milk the tax system by recycling their contributions each year.
“This is because after A-Day it will be possible to take an unsecured pension, withdraw 25 percent tax free and not have to withdraw any income at all.
“The tax free lump sum can then be reinvested into your pension fund as a new contribution with a fresh slug of tax relief.”
Imagine if anyone tried this sort of “creative accounting” with their benefits or their tax credits. Imagine if the Daily Mail discovered such sums finding their way into the pockets of asylum seekers.
Yet New Labour is creating a tax regime that will shower billions into the pension funds of the rich every year.
Next time they say there’s a pension crisis and that you have to work longer for less, remember that A-Day supplement, and the smiles on the faces of the rich who will get their long and luxurious retirement paid for from public funds.