It’s not just politicians who cause unintended consequences. The same is true for our law makers.
A seemingly obscure High Court decision impacting Lloyds Bank back in December could have consequences that former pensions minister Steve Webb describes as ‘catastrophic for someone who had acted entirely in good faith’.
I’ll try to explain.
Do you remember the days from 1978 to 1997 when you could ‘contract out’ of the earnings related Additional State Pension? The scheme you were in had to commit to a Guaranteed Minimum Pension (GMP) and your employer paid a reduced amount of National Insurance because you were foregoing the extra level of state pension.
Inevitably, given the difference between typical incomes for men and women during that period, the result is that the GMP for many women turns out to be less than the GMP for men who were doing the same job. Within Lloyds Bank, this impacted around 230,000 female staff who understandably wanted the inequality to be addressed.
And they won their case. On 1st November 2018 the High Court ruled that Lloyds must modify three Defined Benefit schemes in order to equalise GMPs for men and women. Champagne all round, another battle won in the long fought war on gender inequality, I hear you say.
Except for the unintended consequences.
One of the most politically motivated changes to pensions law in recent years has been the decimation of the Lifetime Limit. From £1.8 million in 2011 it has now reduced to £1 million and change. When the limit was reduced, many people were already at or near the existing limit. They were granted exemption from the new limit either through ‘individual protection’ or ‘fixed protection’.
The problem is, part of the protection deal was that no additional pension benefits could accrue in the future. So, if you’re a woman who has a scheme in protection and you are now going to have your Guaranteed Minimum Pension rights equalised with the men, you will by definition accrue additional pension benefits. If your scheme was protected at the £1.8 million level and you are deemed to have lost your protection by dint of the equalisation payment, you will be immediately brought down to the same Lifetime Limit as everybody else, £1.03 million.
The difference between the ‘protected’ limit and the new limit, £770,000, will be taxed at 55% giving you a payment request from HMRC for a mere £423,500. Ah, the price of equality…
It would be nice to think that HMRC would look kindly on this chain of events which no one could have predicted back in 1978. Sadly, the experience of those being hounded for retrospective tax in relation to the Loan Charge affair suggests otherwise.
Despite protests from the House of Lords that HMRC is acting unreasonably, the witch hunt goes on. In fact, it’s now been extended to countries as far away as Australia and Madagascar with as many as 1,700 freelancers living abroad now in the cross-hairs. People are being given just six weeks to agree a repayment plan for taxes going back to 1999 or face an additional charge.
Many have already received the dreaded Accelerated Payment Notice, surely the most undemocratic device ever used against UK citizens? This is a demand for up-front payment based purely on the whim of HMRC, with no prior tribunal and no right of appeal. They don’t have to prove anything to a third party, they are not answerable to a court and you have no right to complain about it. You are done up like a kipper.
I know a country where, if the government imposed such draconian powers on its citizens, thousands of them would don brightly coloured jackets and protest in the loudest and most disruptive way until the law was changed.
Sadly, in soporific Britain, it’s not going to happen.
Which is why I am putting Plan B into action. A plan I will share with a small number of you in London on March 7th.
Until next time.