Pension Tax Credits - Is The Truth Out?
It has been announced that Gordon Brown may well have gone against the advice of colleagues when he decided to reduce the advantageous tax treatment of pension funds. In his first budget in 1997 the chancellor announced plans to withdraw tax relief from pension scheme income, thereby increase the outflow of funds from pension schemes. What difference has this really made?
While initially the government benefited to the tune of some £5 billion, the true effect on the pensions industry and savers is much much more. When you consider that the dividend income which had previously been tax free would have been reinvested into the pension fund, there is an initial fall in the amount for reinvestment. However, when you calculate the effect of this reduced investment over 5, 10, 20, 30 years etc, you then begin to realise the impact.
While it is impossible to put a definitive figure on future investment returns, the potential losses have been put at anywhere upwards of £100 billion by market experts. There is also the direct knock on effect to companies and pensioners who are now looking at an increasing number of pension funds running a deficit. As the parent companies now have to make good the short fall, this is draining billions of pounds from investment into business, which has a direct impact on employment, savings, pensions for the future, etc.
It is therefore very easy to draw a direct line from the governments decision to withdraw the tax relief from pension funds 10 years ago, to the current debacle which has seen many workers and companies suffer as a consequence.
It seems that Gordon Brown’s tenure as chancellor may not have been as successful as he would have us believe?
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