The Treasury should be renamed the office of pension irresponsibility.
It wants to milk pensions as the “new banks” and is acting as the political wing of the housing market. It talks fiscal prudence while pushing the bribes of March.
For a second year running it has tampered significantly with the tax treatment of pensions but, whereas last year’s tampering led to a fabulous surge in interest, this year’s will lead to problems- big problems.
I am not talking about the launch of a secondary annuity market through a further tax tweak.
I am talking about the cut in the Lifetime Allowance from £1.25, to £1m. This may only impact 4% of pension savers, but they are the 4% of pension savers who matter most to the rest of us, those who have stuck the course and prioritised their pension as the core of their financial planning.
I am one of those people. At several points in my life I have had the choice of putting significant amounts of money into pensions rather than housing or fast living. Boringly, I chose to fund my pension despite warnings of political risk.
Well that political risk bit me yesterday afternoon at around 1.30 and though I will be able to protect what I’ve got, the chance for me to continue to save for my old age in a pension is all but over. I have virtually no more headroom.
And there will be many people in their forties and fifties and sixties like me.
Steve Webb- right as usual
I sat in a room with the current pension minister, Steve Webb- this was last Thursday. Steve was asked what he most desired were he to be in Government next term. He said that he would scrap the lifetime allowance. Anyone who attended the PPI Pension Question Time will have heard him say it too.
So once again , the office of budget irresponsibility has cut straight across the bows of the Pension’s Minister and turned up the volume on the policy that is turning bosses off pensions.
Andrew Neil – right as usual
I was at the Spectator’s budget briefing last night where Andrew Neil told the assembly not to invest in pensions. He predicted that politicians will continue to treat them as the low hanging fruit which can be harvested to pay for the gimmicks that re-elect them.
I talked with the political journalists, trying to explain that cutting the legs off the dinner table is no way to feed the family. I fear that they were only half listening. It is so much more sexy to talk about the impact on the housing market of a first-time buyers ISA (a good idea) or of scrapping savings taxes (another good idea).
A tweak in the taxation of the “haves” is a victimless crime – isn’t it.
Well no it isn’t. As Steve Webb said at the PPI, preventing people from aspiring to a pension of much more than £35,000 (DC – £50,000 DB) is simply not right. It may be what Labour was advocated – and it maybe a political move to spike Labour’s guns, but it is not right.
And if we exclude the people who are committed to pension saving, from pension saving, we cut the legs from the table. those left dining will see “pensions” as the AVCs to wealth accumulation in other areas.
Ros Altmann, right as usual
Ros Altmann, who is generally right on tax, has called for those who are saving in DC to be exempt from the LTA. They have had to do it the hard way and they don’t have the guarantees available to those with DB. I agree. You can read her excellent budget commentary here.
I would go further and – with Steve Webb reduce higher rate tax relief on pension contributions , manage the annual allowance and scrap the LTA altogether.
Taxing people on what they have saved and the investment returns they are seeking to get on their savings will , as Andrew Neil pointed out, alienate people from pensions and drive yet more money into the housing market. Having wealth in property is nice, it makes for a content electorate – but you can’t buy a sausage with a bick.
The reason we get people to save into liquid assets in DC pension schemes, is to ensure that people have the right money at the right time of their lives. This hopeless attack on the capital reservoirs built up by responsible people goes wholly against that policy.
The LTA is now set at such a low rate that it catches not just the assiduous DC savers, but many very average Joes who have spent their careers in DB plans. It does not hurt them so much because their pension rights are valued in a different way but it still means that the large DB schemes are going to be accruing benefits for hundreds of thousands of people, which will be taxed at 55%.
The £600m which this reduction in the LTA will bring to the Treasury may help win votes, it will spike Labour’s guns and has very little political downside in the short-term.
Pensions – right as usual
But pensions are long-term. Financial Planning is long-term. This budget has given people’s pensions a kick in the nuts and those who are hurt most are the people who are busy organising the pensions for those who haven’t saved.
I hope that others will stand up and shake their fist at the Office of Budget Irresponsibility and say “no”, I am not voting for any more of this pension bashing. I hope that you will be among us.