Beware Chancellors talking pensions


Jeremy Hunt is to be found talking about “declinism” and the propensity of commentators to talk Britain down. He says his priority is not just to stabilise but to grow Britain. He goes on to talk about reversing the declinism in productivity among the over 50s by getting us back to work.

An article in  Saturday’s   Daily Telegraph has Jeremy Hunt talking about how the pension taxation system is topping some well pensioned older workers staying at work , as work triggers penal taxation for them. Notoriously, pension tax thresholds influence the working behaviour of doctors who say their pensions are stopping them doing their job.

Hunt points particularly to the Lifetime Allowance, a threshold on the value of your pension wealth which means you could find yourself paying a marginal tax of 55% on income from your pension. You don’t pay national insurance on your pension but high earners don’t pay national insurance on their high earnings so this is thought of as penal. In the context of historic taxation of the rich, a 55% marginal tax on the highest slice of your earnings is not penal, but then is not now.

Meanwhile, nurses, who aren’t working because they have too little rather than too much pay, are leaving the same pension scheme that the doctors are in. The main reason that nurses find it hard to pay pension contributions is that by doing so , they fail to pay household bills, many part time nurses and low-paid orderlies in the NHS do not earn enough to pay income tax and – due to an anomaly in pension taxation, overpay their pension contributions by 25%. The Government have promised to fix this – but not till 2025.

What is needed with pension taxation is a progressive system that is right for today, what we have is a mess. The more you look into the complexities of pension taxation , the more you realise that it is grossly regressive, it favors the wealthy and does not reward those on low incomes. The Treasury know this and would like to do something about it. Given a clean sheet of paper, they would. But they can’t because everything is interconnected and the waterbed effect means that pressing down on one problem means another problem arises elsewhere. So we soldier on with the current system, inadequate as it is.

Whatever the reason for ducking the challenge – Brexit- Covid – Ukraine – cost of living spike – there will always be another one round the corner. So the best that can be hoped for, is some attention paid to our pension out of pure political opportunism.

Why is the Chancellor interested in pensions right now?

We currently have two political imperatives’ which demand the attention of the Treasury, they are currently attracting tax and benefit tweaks that look short-term and regressive, I believe that we can do better – but we need to have a clear view of what pensions are doing if we are to avoid such sticking-plaster solutions.

Crisis one is specific to the NHS and involves senior doctors who not only have a problem but have unions that get the problem out. Issues with the NHS are so politically acute that even the Chancellor has to take note, that’s why the Chancellor is looking at adjusting the LTA to make for happier doctors. The LTA isn’t the real problem, the real problem is the annual allowance or AA but that one really is a “no-go area” for the Treasury. Keeping a lid on pension tax relief on the contributions of the well pensioned is a political imperative – watch what would happen if it didn’t.

Crisis two is about  productivity of the over fifties, which is part of the problem Britain has with growth (or lack of it). 700,000 people over the age of 50 have gone missing from the Government’s records, they aren’t paying tax or national insurance, claiming benefits – nothing. They might as well have done a Thoreau and gone fishing for a couple of years around some remote Scottish loch.

My personal theory is that they are enjoying the windfall from their workplace pension which they have claimed as a lump sum and are now spending till it runs out. If they are smart, it will run out when their state pension cuts in meaning they can maximise benefits in retirement m their national insurance record while having as little to do with work as possible. This is not an unreasonable strategy, it was what “save enough to stop work” – my slogan when selling personal pension increases, was all about.

But these people are threatened with a Mid-Life MOT and vague threats along the lines of “no-work no benefits”. This is from the Daily Telegraph

You don’t have to be on the cast of  “Shameless” to work out that Universal Credit is going to be withheld from those who turn up at benefit offices, once their savings have run out. The Government’s current strategy is to smoke out not just the benefit cheats but what Australia calls the “double-dippers”, those who use pensions and their tax incentives to have a good time and then plead poverty on the state. This is a mass-affluent perception of the feckless poor – a vision that the media is only too happy to promote. It may have some reason, I don’t know for sure- I’m not poor. But I don’t think poverty works like that.

Looking at things through the lens of taxation is a bad way of thinking about pensions. We should think of a pension as a wage for life that is designed to meet a specific need, to replace income lost when people stop or reduce work. Using pension savings  as parachute payments to bridge to state pension is a strategy for those who can’t or won’t work till state pension age.

The consequences of opportunism now clear to see

But what has Government done to deter people from doing this? They have actually encouraged it

  1. They allowed this to happen by changing tax rules in 2015 to let people take their pension pot as they liked (freedoms)
  2. They did not put in place an alternative to the annuity – so there is no attractive alternative “pension” as the default way of taking your savings as a wage for life.
  3. They allow people to choose between being self-sufficient (living off savings) or being state dependent (living off benefits). Which is why they’ve lost touch with 700,000 citizens

This is what comes of having no strategy for the over 50s that ensures them dignity in retirement. For all our talk of the success of auto-enrolment, the 11m extra savers are hearing they will get a windfall not a wage, a pot not a pension and they reach their sixties with  a strategy based on the state pension and some cash to get them by.

To change this we don’t need to re-educate through mid-life MOTs or threats about the consequences of not working, we need to offer a positive alternative.

That’s why I support a system that promotes workplace pensions as pensions , that encourages people to value their savings as a means to a better life in retirement and incentivises them to work so that they can save more – right to the point when they convert from being savers to pensioners.

Which is why we should beware Chancellors talking pensions, and encourage those ministers who have responsibility for work and pensions to focus on keeping us at work for the right reasons!




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Beware Chancellors talking pensions

  1. Eugen N says:

    The Chancellor has realised the UK is loosing very important people due to Lifetime allowance.

    It is not only GPs and consultants, but professors, managers, CEOs, CFOs, etc. they are offered jobs Overseas, with taxed relieved pension provisions, and they are not caught by any lifetime allowance.

    Re workplace pensions, the problem is people not saving enough, not missing on a with-profit pension annuity. No retiree with a DC pot is interested in a “wage for life”, most are interested in retiring a few years before 67/68, and having their mortgage paid off. Those pots are small, many less than £100k.

    We need first to increase minimum contributions, and after to look if there is a need for a “wage for life”. Although, I do not think people would do the “trade” between their hard cash in a personal pension and a non-guaranteed with-profits pension. Those third ways pensions sold by MGM, Prudential and MetLife have disappeared because the public did not have an interest in them, plus that they were misleading.

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