No-one in their right mind would have willingly created the monster that is now the country’s current pension system.
It has become the financial Hydra of modern day Britain. Bizarrely, it is deterring most of us from saving for retirement because we are intimidated by its many heads of poisonous anti-saving rules.
Governments past and present – red, blue and in-between – are primarily to blame for turning what should be a saver’s friend into a foe. Greedy pension providers with their rapacious charges haven’t helped either.
Politicians have meddled furiously, justifying it on the grounds that pension savers enjoy generous – and costly – tax privileges. In doing so, they have created this multi-headed savings beast that few of us trust or understand.
No wonder research, just published by insurer Partnership, suggests that nearly one in five people over the age of 40 do not believe they will ever be in a financial position to justify retiring. They haven’t saved enough because of lack of trust in the system and because they couldn’t afford to. They will work until they drop.
Ever since Margaret Thatcher started the meddling in the cause of freedom and capitalism, things have gone from good to bad. It was Maggie and her minions who forced employers to reduce surpluses on pension funds, and planted the seeds of a future mis-selling scandal with the birth of personal pensions.
Deluxe work pensions that provide employees with a retirement income based on the number of years worked and final salary have virtually disappeared from the landscape. The demolition job was completed by Gordon Brown, wearing his hard hat, when he made his crass decision in 1997 to bulldoze through a heinous annual tax charge on company pension schemes. Some have quantified the hit at £5 billion, others at £10 billion.
The wonderful final salary pension scheme is going the same way as our country’s coal industry, although it still lives on for those employed in public life (strange that).
More recently, we’ve seen a series of lightening political strikes on pensions. The total size of fund we are now allowed to have saved up, without the taxman wanting a slice, stands at £1.25 million and reduces still further to £1 million from the new tax year. Not so long ago in 2010, it stood at £1.8 million.
They may seem big numbers, but in fact a £1 million pot will secure a 65-year-old an inflation-linked annual income of around £33,000. Decent, of course, but hardly an income to match the retirement lifestyle that most current politicians and civil servants will enjoy in their dotage.
April 6 also brings in a reduction in the amount that additional rate tax payers can invest into pensions on a yearly basis. In some instances, this will fall from £40,000 to £10,000.
Then there is the elephant in the room – the removal of tax relief on contributions. This was threatened by the Government last summer and hastily shelved in the run up to the Budget when George Osborne feared a Middle England uprising.
With big benefit cuts now off the agenda, post Iain Duncan Smith’s departure from the Department for Work and Pensions and the arrival of the suave Stephen Crabb, tax relief could well come under attack again.
So, a cut in tax relief on pension contributions for higher rate taxpayers? More than likely. A move towards ‘pension’ ISAs where contributions do not receive tax relief but the Government pays in a bonus? Again, likely given Osborne’s launch of the ‘lifetime’ ISA for the under 40s (I miss out by a whisker or three).
I don’t possess a financial crystal ball – more’s the pity – but I would put a tenner on the fact that pensions in 2020 (the year of the next General Election) will be a much less attractive way of building long term wealth.
A worrying prediction, given that Partnership believes we are all seriously under-estimating how long we will live in retirement – more like 30 years, rather than the 16 to 20 most over 18-year-olds believe it to be.
The Hydra continues to wreak havoc with our pensions – and it appears our politicians don’t give a damn.
Jeff Prestridge is the Personal Finance Editor of The Mail on Sunday
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