Others are surprisingly ignorant; according to The People’s Pension one-third of people are unaware that the government even contributes tax relief to their pension.
Pensions tax is not fair between the generations, retirees not long ago had lifetime allowances approaching £2mn. Today’s retirees usually have scarcely £1mn – is it equitable that retirees have different tax rules, depending indirectly but largely on their age?
It is the same with the annual allowance. Millions of people are economically inactive when the UK is desperate for labour. Why would they work when the penalties are so heavy for anyone with even a middling defined benefit pension?
Despite the present taxation quagmire, one little noticed announcement in the ill-fated Kwasi Kwarteng Budget (but still to be enacted in the 2023 finance bill) is the closure of the Office of Tax Simplification.
This is a retrograde step but not surprising as most of its eminently sensible suggestions were ignored or watered down.
A government spokesperson told FTAdviser: “Tax simplification is a priority for this government, which is why instead of a separate arms-length body to oversee it, we will embed it into our institutions so it is at the core of all tax policymaking.”
Yet it seems a strange way to show their priorities by abolishing an office much valued by the great and the good of the tax profession.
According to its most recent annual report, the OTS employed the equivalent of 7.5 full time people with a budget of £1,057,000. A drop in the ocean in terms of government spending.
Indeed, the government seems to pay mere lip service to simplification with a slew of new taxes:
- The annual tax on enveloped dwellings.
- The soft drinks industry levy.
- The plastic packaging tax.
- The residential property developer tax.
- The diverted profits tax.
- The digital services tax.
But tread carefully: even when simplification is attempted, it can backfire. From, potentially, April 6 2026, self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax.
PwC warns that: “It doesn’t always work well for those with more than one job, pensioners with a number of pensions or those with part-time earnings, even when the overall level of income is relatively modest.”
Just over 100 years ago, the revolutionary Finance Act 1921 set the framework for pensions tax relief. This remained broadly intact for most of the 20th century.
Is it too much to ask to simplify and codify our tax system, if not for all 20,000 pages of rules, at least for pensions, to make them fit for the rest of the 21st century?
