How can the lifetime allowance possibly be part of  a sustainable system of pension taxation?

Good news for those unprotected pension savers who have more than £1m in your pension pots- you probably won’t be paying 55% exit penalties – oops – crystallisation tax.

The bad news is that that’s because you’ve probably seen your pension pot shrink by 20% since Christmas after a stock market crash.

So what do you lie awake at night about?

Success and more tax?

Failure and less savings?

According to figures published by Aviva, up to 1.5m working adults, about 5% of us, are heading towards paying 55% on part of our retirement savings when we get to spend it (or even if we don’t). The Telegraph amplify the findings.

To hell in a handcart?

This should make sobering reading for those who regard maintaining the tax status quo as the best way to restore confidence in pensions. If you’re going to hell in a handcart, you’re probably grateful for some traffic lights – even a road block!

The current pension system is taking us to hell in a handcart. How do you tell someone saving hard  , working hard and trying to replace their earnings in retirement that penal taxes await them if they succeed – a lower standard of living if they fail? How can that be an incentive to move from debt to saving?

Those who are likely to be hardest hit (according to Aviva) are those on more than £80,000 pa, which seems like a phenomenal amount of money to those on average earnings (£26,000) but is a level of income a high percentage of young people now aspire to. The current pension system isn’t rewarding aspiration – which is most un-conservative.

Rewarding abuse of the national insurance system?

Yesterday, a friend to this blog, David Yeandle and a former Pension Minister  Stephen Timms MP ,tabled questions in the House of Commons on just how much national insurance is not being paid so that the amount going to our pension providers can be maxed.

National insurance is money paid by those who are working to those who aren’t. It is a key way we redistribute from the “haves” to “have-nots”.

Losing the right to exchange national insurance payments for extra payments to private pensions may hurt private pensions but bolster welfare.

It is surely perverse in the extreme that we are running a pension system that is reliant on depleting our welfare system. This is no way to run things

I’m very proud that this blog inspired David and Stephen to prompt a proper debate on the fairness of this.

The net pay lottery

Regular readers of this blog will now how incensed I am at the complacency of those who run our occupational pension schemes who pay a fortune to maintain the benefits of a few and ignore the pension saving of their poorest workers.

As I write, many people earning under £12,000 who were promised a Government Incentive for being “in” the pension system , are not getting that incentive, because they are contributing to pension schemes that run on net pay. Were they in relief at source schemes, they could see their contributions boosted by 20%.

These people have no idea that they are missing out or why they are missing out. I suggest that when they wake up to what’s going on – there’s going to be trouble.

No way to run a pension system

The current means of taxing pensions is all wrong. It rewards companies for not paying national insurance, it penalises people who save hard and it allows for freakish injustices like the non payment of incentives to the poor.

It is time we forgot about tax relief and focussed on incentivising saving. Time we stopped robbing the national insurance pot to bolster private pots and time we targeted incentives on those who need them most.

Yesterday I spent a profitable hour with Carol Knight, COO of  TISA, (Tax-incentivised-savings- association). She talked about the need for a savings culture and we talked about restoring confidence in pensions.

I know that the Budget announcements in 2016 will not please those who work in pensions, but I suspect they will benefit those who don’t.

The pension system has to change, it just isn’t fit for purpose.