The Government has lost trust with pension changes

I STARTED my own business in 1975. Goodness knows why. Those business owners who were successful and earned over £20,000 saw the excess taxed at 83 per cent. It got worse. If they had decent unearned income on top, there was a further 15 per cent tax, and being your own employer incurred National Insurance contributions of 8.5 per cent. No wonder so many job and wealth creators were giving up or leaving the country.

And until only a couple of years earlier small business owners couldn't be a member of an occupational pension scheme. Don't ask me why.

But at last in 1973 the UK Government recognised the injustice. New laws were passed giving them the opportunity to catch up for lost years, which allowed larger contributions than normal to be paid, and tax relief. And these rights continued more or less unchanged until 1987.

By then the Inland Revenue became twitchy thanks to rising levels of tax relief and the increasing size of pension funds, which were enjoying tax-free dividends and gains. So that kicked off the introduction of new restrictions designed to reduce premium levels, tax relief and benefits.

But one thing was sacrosanct. No retrospective legislation was applied. That's been a recognised law in Parliament for as long as I remember. And legal eagles have constantly reminded pension policyholders their rights include a "legitimate expectation of benefit". So those who joined pension schemes before March 1987 continued to enjoy full benefits promised to them, without limit.

But this Government doesn't recognise rights or "legitimate expectations of benefit". I needn't go into all the unfair attacks on private pensions over the past 12 years but it is obvious this Government sees private pensions and business owners as easy targets.

In the recent Budget, this Government has turned the clock back 30 odd years with a raft of proposals which could yet have grave ramifications for all savers, and for the country.

Six years ago, John McFall, now the chairman of the Treasury Select Committee, asked me to chat to him about the savings industry in the wake of the collapse of Equitable Life. He wanted to know how his Government could rebuild the confidence of savers, investors and those contributing to pensions.

I told him it was vital to be consistent. To encourage long-term savings you must be consistent with rules, and tax treatment, and never introduce retrospective laws. Turn your back on that and you undermine confidence. Sadly this advice has been ignored.

Three years ago this Government announced pension rules supposedly to simplify pensions for high earners. But hidden in the small print was a blatant attempt to remove promises made many years earlier to these high earners and business community.

Once this trickery was exposed the Government bowed to pressure and did introduce new improved terms aimed at allowing new generations of high earners the opportunity to make up for lost time, with generous exemptions for big payments to pension plans.

Now this would have come in very handy for many who are currently suffering from lost profits and falling pension values in the recent economic downturn. But what does the Government do? It announces swingeing increases in taxes for high earners, and retrospectively changes its mind on pension contributions. It also messes up the recognised definition of pensionable income.

So high-earning business owners will be facing marginal taxes of around 63 per cent. How's that? That's a new 50 per cent tax band, employers' NIC contributions of almost 13 per cent uncapped and the removal of personal allowances.

What's even worse is yet again this Government has exempted MPs, senior civil servants and judges.

In all the years I've been in business I have never come across so many business people who frankly have had enough. There's widespread talk these days of giving up or leaving the country. So not only will this Government fail to raise the extra funds they expect from the new tax rates, it looks likely to lose a substantial proportion of all the other taxes they normally would have gathered. Serves them right!

• Alan Steel is chairman of Alan Steel Asset Management

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