Polly Toynbee, columnist for The Guardian newspaper, wrote on Michael Johnson’s pensions proposals in her article on Tuesday 8 March 2016.
“Where did Osborne’s initial pensions radicalism come from? Michael Johnson is pensions expert at the rightwing thinktank the Centre for Policy Studies, an unlikely source of social justice reform. He has been camped out in the Treasury, its leading inspiration as author of many papers up-ending conventional beliefs. He questions whether the state need pay people to save for pensions at all. The stock answer is that people don’t save enough for their old age, but those who don’t save are the lower paid – not the rich who need no incentives.
Johnson quotes plentiful studies showing that tax reliefs don’t incentivise those who don’t save enough: half the population don’t know what a tax relief is. Denmark all but abolished tax reliefs, and the evaluation by Copenhagen and Harvard universities found no effect on savings. But Johnson wasn’t proposing anything so extreme – simply to cut back on pointless reliefs and share the rest more fairly. Why do the better-off get a 40% or 45% bonus for every pound they save while the state gives those on the basic rate just 20%? Everyone should get a flat rate at around 33%, saving the state some £10bn.
Why, he asks, should people take out a quarter of their pension in a tax-free lump sum when that pension has already had its tax relief? “No one knows why,” he says. The system is riddled with fiddles: 54-year-olds can put £120,000 into their pension covering the last three years, and then at 55 take out 25% tax free.
The most radical plan Osborne floated, as devised by Johnson, was for a lifetime Isa: instead of tax reliefs, for every pound saved into it out of taxed income, the state would add 50p. The incentive to leave the money saved until old age would come from taking away that 50p from any pound taken out before retirement. The state would save by keeping a cap on annual payments at £10,000 a year: only the very well-off can afford to save more than that.”
To read the full article, visit The Guardian website.
Date Added: Wednesday 9th March 2016