So we get to the heart of the matter. Is a pension a “wage in retirement” or is it a “tax-incentivised tax-wrapper”? This little exchange on twitter sums up the differing views.
For those who practice holistic financial planning, Al and Dave among them, a pension is just another way of expressing someone’s total wealth, whether it is a source of income or capital, the utility of your SIPP is based on its tax-incentivised status.
For me this is quite outrageous and I rage against this perversion of the word “pension” and the abuse of my tax payments to fund tax-arbitrage for the wealthy.
Of course I’m partly wrong and Al and Dave are partly right, but we shouldn’t let the exceptions drive the argument. 94% of the UK population do not take holistic financial advice; the 6% that do – the wealthy 6% – do not drive the argument. They are the lucky sods who hold all the cards, they should be keeping quiet – their tax-breaks are paid for by the unlucky sods who need a replacement income in later life.
Why the tax-wrapper is so wrong.
Why I am up in arms against the definition of a pension as a tax-wrapper can be found in my two blogs over the weekend. The one on Saturday celebrates the enjoyment of ordinary people on a day out on the Flying Scotsman. There must have been over one thousand people on the train to York and I doubt more than 10% were under 60. It was great to see older people spending their money – that’s what you can do – if you have the financial security of a wage for life. The cost of the day was around £100 if you went 2nd class and around £150 if you went first. That’s not Orient Express pricing, it’s within the means of the elderly affluent and that included people from all social classes – because of adequate incomes in retirement.
My second blog, was about a very old lady who spent her time trying to stay health by working out and taking care of her health. Her daughter poked fun at her for the time she spent in hospitals, she replied “I’m busy staying alive”! There is a natural and very proper instinct among older people to live their lives properly way beyond their life expectancy. They are the people who have quite enough on their plate to be managing the “hardest, nastiest problem in finance” on their own.
My point in both these blogs was to point to the social and economic advantages of people having pensions – a wage in retirement – and spending them!
Tax incentivised savings accounts are not pensions
Candidly the problem is that too much is being saved in pension schemes.
And the solution is nationalisation.
And your failure to accept this is exceedingly neoliberal. https://t.co/ZSVbLbitgc
— Professor Murphy Richards (@MurphyCandidTax) July 1, 2018
The disgruntlement of Professor Murphy Richards, is not about pensions at all. It is about the tax-advantages given to the 6% of the population who have advisers and intend to use their pension pots not to buy pensions but to pass wealth – tax efficiently to the next generation and other such nonsense.
It was not for this that the tax-breaks on pensions were created. The tax-breaks that IFAs and their wealthy clients so cherish, are heavily slanted to the wealthiest in society, meanwhile, hundreds of thousands of those on low incomes are being excluded from pension tax relief altogether, either because they are excluded from auto-enrolment – or – worse – they are being enrolled on a tax promise that is not delivered to them.
What the tax-incentivised savings people are keen about – is tax saving for their clients , not tax-saving as a principle. If they were standing up for the current tax system for its social advantages, they would be shouting about the net-pay fiasco for low earners. That they don’t – is indicative of their commercial bias. The tax incentivised lot are about keeping wealth in the hands of the 6% and making the 94% pay for it.
Professor Murphy is right to stop the gravy-train that sees the rich use pension tax legislation to carve out a tax-free source of extra wealth. From the sounds of him, Professor Murphy would not object to thousands of us enjoying some affluence in later life and going on the odd Beano on the Flying Scotsman.
A pension or a tax-wrapper?
If you live and work with rich people, if your source of wealth is rich people’s wealth – then it is not surprising you lose touch with what pensions actually are – a wage in retirement. I am quite sure that Al and Dave haven’t done that as they are normal down-to-earth folk who do not consider helicopters the only way of getting about etc…
The uber-rich have moved beyond pensions, which now only protect a couple of million pounds of their wealth. The uber-rich are into hiding money in offshore trusts etc. This blog is not about them. It is about winning back the hearts and minds of ordinary people, who have become affluent with this country, to the idea of a wage in retirement – a wage for life.
Because so long as people are being seduced by the telephone numbers of a drawdown account, they lose touch with essentials. The state pension is worth a couple of Lamborghinis but it’s valueless to the wealth managers. The DB scheme is simply swapped out for a pile of cash in a SIPP, the consequences are barely thought of.
SIPPs are not providing a wage for life, or very rarely; they are being used to store wealth not to spend it – as is noted by Paul Johnson of IFS over here and Jeremy Cooper in Australia (see other recent blogs).
Meanwhile it is the wage in retirement schemes that are allowing ordinary people to enjoy their later years and fight off the encroachment of death. Britain needs more wage in retirement and less phoney freedoms – end of!