A former finance minister has urged pension funds to invest in Britain. Baroness Altmann, who served as the Conservative pensions minister in 2015/16, said many funds behind British pensions were investing overseas instead of pumping money into the UK economy.
Under current rules, pension funds receive a huge £70 billion in taxpayer subsidies, more than the entire UK defence budget. However, Government figures show that the percentage of investments by the funds in Britain has plummeted from 50% a decade ago to just 20% currently.
Pension funds are subsidised by the Government in the form of tax relief, which means that when people pay into their workplace pensions, they have already been taxed on their wage, so the pension money that would have been taxed is paid by the Government into a retirement savings account instead. You are not taxed on what you put into your pension, only on what you take out as income later.
Tax relief under the current system works out at 20% for most earners, but for higher earners over £50,000, it is around 40% to 45%.
Previous studies have discussed the Treasury setting a flat rate of relief for everyone, for example, at 25%. Lower earners would benefit from more relief, but the change would mean higher earners have less, and it could hit the amount of funds that are subsidised by the Government, potentially freeing up more money for the Chancellor.
Baroness Altmann said: « Why should the Government keep funding £70bn a year for pension fund managers to invest in other economies and not our own? »
A report from November found that UK workplace defined contribution schemes invest significantly less domestically than their international counterparts.
Canadian pension schemes allocate 22% to domestic holdings, while New Zealand funds invest 42% and Australian schemes maintain 45% in their home markets.
Baroness Altmann added: « Pension fund managers seem to have lost sight of the scale of taxpayer contributions they benefit from each year. £70bn is far larger than the country’s entire defence budget (around £52bn) and policing (£18bn). How can it be good value for taxpayers to see such huge sums invested overseas and not here?
« Taxpayers should not be helping to increase pension managers’ funds under management, and facilitating overseas investment, especially when the UK urgently requires increased long-term investment to boost growth. »
ProfessionalPensions.com reports that Baroness Altmann believed urging UK pension funds to invest at least 25% of funds at home could « help Britain’s long-term growth ».
HMRC recently published research into workplace retirement schemes, which examined potential cuts to the tax benefits enjoyed by employers and funds.
A Government spokesperson previously described discussion of a tax raid on pensions schemes as « totally speculative » and said that « HMRC regularly commissions independent research on all aspects of the tax system. »
They added: ”We are committed to keeping taxes for working people as low as possible which is why, at last Autumn’s Budget, we protected working people’s payslips and kept our promise to not raise the basic, higher or additional rates of Income Tax, employee National Insurance or VAT.”
