“What do I know?”

This was a question posed by a leading thinker of the sixteenth century.  Called Michel de Montaigne, he asked himself this question a good deal over a period of time and, in answering it over several volumes of essays up until roughly 1592, Montaigne touched on many subjects.  Of the subjects touched upon by Montaigne, he did not touch on the subject of the tax relief that is granted on contributions to pension schemes.  As far as PN is aware, what you are about to read (or not read if you aren’t interested – please yourselves) is the first ever article devoted to Montaigne’s relationship with pension scheme contributions and the tax treatment of them.  PN will start things off by telling you, possibly the only remaining reader, that he, PN, is certain that Montaigne never made contributions to a pension scheme and, therefore, never claimed tax relief on his contributions.  Or; PN will refer to his almost certain knowledge of this.  There is a difference.  There may have been, in sixteenth century France, a sort of a scheme which paid a sort of a benefit to a certain class or classes of people at a time when the French system of taxes was based on something more than a regime where tithes were paid on goods and chattels.  There may also have been solicitors or avocats such as Harold Brako, then in his first youth, who acted for financial institutions and who may or may not have taken action on behalf of such institutions against individuals or organisations if they failed to pay appropriate amounts at the right time. 

What PN is clear about is that the chances of Montaigne having made contributions to a pension scheme and then claimed tax relief on them in sixteenth century France are very small indeed since a particular conjunction of circumstances would have had to have existed and the odds against them having existed in sixteenth century France are overwhelming.

It is unlikely in the extreme than anyone still reading this piece is unaffected by pension contributions and tax relief.  The short version of a very long story is that if one makes contributions to a registered pension scheme or arrangement, one receives and / or claims tax relief on those contributions and, again basically, the more money one has and the more one puts into one’s pension plan, the more tax relief one gets or is able to claim.  This fact should lead to a statement of certainty from PN that, to his certain knowledge, everyone affected is interested in pensions.  Of course, PN does not have that certain knowledge or even, in this case, that almost certain knowledge.  In reading the works of Montaigne, PN has felt as though he has been advised by Montaigne not to take evidence (such as that set out in the previous sentences) on trust.  Rather; PN should be sceptical about such evidence.  Although PN’s instinct might tell him that everyone should be interested in pensions, to take that instinct (along with the evidence that has stimulated it) on trust would be to ignore the other evidence which suggests that many regard pensions as the domain of anorak-wearing strange people who should probably get out more (PN’s words here come from what he has heard about himself and his fellow pension lawyers more than once) and that a pension will only interest them when they come to be paid one.  The corollary of this train of thought is or seems to be that not everyone who ought to be interested in what HM Government is about to do is, in fact, interested at all.

Back to what PN knows; Mr George Osborne, the man the reader has possibly been sending flashlight signals to since the last edition of PN, is preparing to overhaul the pension system again.  PN uses the word “again” because he (that is Mr Osborne, not PN – pay attention) has already changed, quite drastically in fact, the limits on the amount of money one is able to contribute to a pension scheme or arrangement without paying tax on those contributions.  Now, Mr Osborne is set to alter the way tax relief is given and / or claimed on the contributions which are made within the new limits.  If you, the reader, are confused, Mr Osborne’s work is done already.  Take a tablet and come back to this piece.

Feeling better? Reports heard by PN and backed up in the Financial Times (FT) are that Mr Osborne is considering introducing a flat rate system for tax relief.  To PN’s almost certain knowledge (Montaigne would be proud), the Government is ready to set the flat rate of tax relief between the current higher rate (vis. 40%) and the basic rate (vis. 20%).  It seems that HM Government’s objective is to encourage lower paid individuals to save into a pension scheme or arrangement however the smart money (vis. the FT’s) suggests that the real reason is to take more money from higher rate taxpayers.  So; the reason is money. Lots of money.  Several billion pounds-worth of money if estimates (*) are to be believed.  If, for instance, the flat rate is set at less than 33% then estimates (*) indicate that higher rate taxpayers could lost thousands of pounds in “lost” tax relief. 

(*) “Estimates” here mean estimates by an actuary and not, as the reader may have been thinking, by PN himself using his fingers and, when they ran out, the abacus he used at primary school.  The estimate referred to comes from Hargreaves Landsdown which has calculated that a higher earner paying 40% tax and currently making pension contributions of £10,000 a year will be £1,500 worse off under a 25% tax relief rate or £1,000 worse off if that rate were set at 30%.

PN pointed out in his last edition that he, PN, does not give financial advice.  To his certain knowledge, PN does not do this and is not about to start now.  PN can, however, leave the giving of financial advice to Ms Claer Barrett; editor of FT Money and, in PN’s opinion, a shrewd journalist.  Ms Barrett finished an article in last weekend’s FT thus: ”the current tax year ends on April 5.  Due to a quirk of the system, you could make a one-off contribution to your pension of up to £220,000 – and still get the full benefit of tax relief at your marginal rate.  For 45% taxpayers, my advice to you is simple: get your skates on!”.

It is to PN’s lasting regret that, possibly through a quirk in his employer’s payroll system (but PN doesn’t know this for certain), he is unable to take advantage of Ms Barrett’s cogent advice but you, the reader, may be able to. PN hopes so.

There is a slightly chilling irony to the last piece of pensions news.  Having referred to and quoted from the FT, today’s conclusion involves a story about the FT. PN noted an article, published in The Guardian of 26 January, that  FT journalists have voted in favour of a 24 hour strike as a result of proposed changes to the FT’s pension policy.  If anyone is qualified to have an opinion on pension provision and their employer’s policy on it, it is the journalists of the FT but what could PN know about such things?  The other way of saying “what do I know?” is “what do I know?”.  To PN’s almost certain knowledge, Montaigne favoured the former emphasis.  PN is certain that he himself favours the latter.

Until next time…….