Yes, it's a Monday morning so we've the weekend's Will Hutton column to pick through if we so with. And I have to say that it's a real doozy. We might hope for just a little better than this from someone who wants to tell us all how we should live our own lives, how the country should be run. He wants to talk about the new pension rules:
Meanwhile, insurance companies will lose a great part of the £11bn inflow they have been using to support long-term investment. To date, that has been invested in company and government bonds. But with more energy, imagination and drive, it could have been a rich source of long-term capital for British infrastructure projects – had the instruments been developed in which the insurance companies could have invested. Even as it was, the government has managed to coax the companies into coming up with £5bn a year on infrastructure over the next five years. But now an important source of the funding – annuity inflows – will evaporate.
The annuity inflows were not a large part of the financing of this market. For in one of his acts of financial repression (yes, that is the technical term for it) Gordon Brown insisted that annuioties should be largely funded by gilts. The pension funds which built up over the years, yes, these could be and are invested in some micture of bonds and equities and infrastucture projects and so on. But it's the very switch from those funds into hte annuities that reduces the amount available for such investments. But that pales beside this ludicrous misunderstanding:
But it is not "their money" and we all live in a society whose members' decisions profoundly affect each other. Mr Webb, I assume, would not make this remark about individuals being free, as neighbours, to play offensively loud music, or free not to bin their household rubbish or free to refuse to school their children. Being free to binge your lifetime savings, which taxpayers have helped create, falls into the same category. Every citizen in these island pays higher taxes than they otherwise would to compensate for the lack of tax coming from tax-sheltered pensions. The contributions to build up personal pension funds are allowable against tax and the funds, once acquired, pay no capital gains tax and no income tax on dividends. Up to 40% of the value of any pension fund is thus created through the construction of a watertight tax-free zone. We should care if the resulting money is spent on a Lamborghini: a chunk of the car belongs by right to taxpayers.
Sigh. The tax benefits that pensions savings get is not actually a waiving of tax. It is only tax deferral. It is true that you do not pay tax on the money you put into your pension fund. But it is also true that you do pay tax on any pension that results from that saving. And it's absolutely true that if you cash out your pension to the extent that you can afford a Lamborghini then you'll be paying at least the higher rate on most of that cash. Quite possibly the 45 p rate on some of it too.
That I pay tax upon my money in 2015 rather than in 1985 gives the taxpayers no claim over my car now, does it?
It's not just that assumption he's making there, that if you don't get taxed then taxpayers own part of you and your possessions. It's that he simply doesn't seem to be aware that pensions taxation is all about deferral, not the simple non-taxation of the income at all. And as I say, these are the people we're supposed to get our ideas from about how to run the country?