The slogan on the kite that flew last weekend read: Pensions are going to cop it in next month’s Budget. Unless the industry can cook up enough public outrage to discourage the Chancellor from action, it looks as though the situation has developed, not necessarily to contributors’ advantage.

Pension rules have always defied logic, and some of the recent changes have increased the defiance. Gordon Brown allowed massive contributions into retirement tax shelters, while George Osborne has made the relief worth 2 1/2 times as much to the highest earners as it is to those near the bottom of the income heap. Those at the very bottom who don’t pay the tax get no incentive at all. In other words, those best able to look after themselves in old age get the biggest incentives, and as a result, a quarter of the tax relief on pensions goes to the top 1.5% of the working population.

Then there is the “much-loved anomaly” as one former chancellor put it, of the 25% tax-free lump sum. Having escaped income tax on the way in, a quarter of the capital value of the pension pot escapes tax on the way out. This makes no sense, but since the top Treasury officials are among the biggest beneficiaries, it’s unlikely to change.

Measured in the Treasury’s arithmetic, relief is expensive. Taken together with salary sacrifice which avoids National Insurance contributions, it’s getting on for £40 billion a year. Scrapping the relief against higher rate income taxes would pay for a massive rise in the personal allowance, perhaps almost as far as the £10,000 a year promised to the Lib-Dems to win their Alliance. Such a move would also provide political cover for scrapping the 50p top rate of income tax, especially if (as many suspect) it doesn’t generate much additional revenue.

It’s only a year since the tax rules on pensions were last changed, but we seem incapable of getting them right. The next political pile of guano is looming in the shape of NEST, a scheme which looks like a second National Insurance. (The website is nauseating, even by the low standards of government propaganda.)

This daft scheme will force all employers to enrol all employees in a pension plan, unless the employee opts out at the start. It will take 4% off the earnings of the lower-paid while adding the same amount to employers’ costs, just when more retail spending and new jobs are most desperately needed. It would be politically unfeasible to scrap it, but the Treasury has already delayed it once. March 21 would provide a good moment to postpone it again, in the hope that common sense will prevail before we step into the ordure.

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