Politicised pensions become anti-social.

Rishi Sunak has been trying to explain the budget’s pension reforms to the BBC and he’s not been doing a good job of it.

“This is about cutting waiting lists…we need our best doctors, our experienced doctors, we need them working”.

Because of the pension regime, they were stopped from doing that. It was preventing them from doing that.

I want to get the waiting lists down, and that’s why we’ve made the change that we’ve made, and it’s going to benefit everyone to get healthcare quicker.”

The language on pensions is negative – we live under a “pension regime” that stops people working. Pensions are portrayed as making waiting lists longer – they are  anti-social.

But when it comes to the upside, the Chancellor fluffed his lines

However, he could not put a specific estimate on how many would choose not to retire as a result of the changes.

The OBR has estimated that the changes will result in 15,000 people returning to work at a cost to the public purse of £1.1bn by 2027/28. That’s an expensive back to work scheme.

Politicizing pensions

It wasn’t just the Prime Minister who fluffed his lines. The Treasury has been doing a pretty bad job of selling the positive of pension reform.

The BBC concludes its report with the Treasury’s view

Chancellor Jeremy Hunt has also pitched the pensions tax cuts as part of a wider drive to reverse a post-pandemic rise in the number of wealthy workers opting for early retirement.

Mr Hunt has also said changing the overall allowances would help the NHS quicker than designing a bespoke scheme for doctors.

John Glen, his deputy at the Treasury, has also previously suggested other highly-paid public sector workers, such as senior civil servants, could take legal action if tax breaks were only offered to doctors.

The Labour party are doing no better. Their response is to vote against the reforms and threaten “wealthy workers” with retrospective sanctions if they bust their allowances.

The Labour party think they may be able to come up with a solution for the doctors by creating a carve out for them as has been created for judges. This is no better look, at least the current Government has given the matter some thought, the opposition has been shown up for being unprepared and uninterested in the very real issues at play.

There has been no comment on all this from the Minister for Pensions or the DWP, since the taxation of pensions is not in their remit. This must be particularly frustrating for the DWP’s “back to work” minister, Guy Opperman who has responsibility for implementing many of the reforms to deal with the 800,000 idlers who are over 50 and not in the workforce.

Pensions with a social purpose

While the Prime Minister , the Treasury and the opposition argue how pensions can keep us working, the vast majority of us think of pensions as a way out of work.

If there is a common purpose for pensions it is to provide people with a wage sufficient to give us dignity in our later years. That is the social purpose of working and saving while at work.

Tax distractions

But the fixation on pension taxation that has dominated the weeks prior and the week after the budget have distracted us from that purpose. Instead, the focus is shifting to retirement saving as a means to provide efficient inheritable wealth.

I find it shocking that the debate is focusing on the tax-treatment of pension pots (not pensions). Pension pots should be thought of as pensions in the making and not as a means of wealth preservation . A pension taxation system that is driven by appeasing that small minority of people who have too much money in retirement has got its radar set the wrong way.

Although we have had recent differences, I am very pleased that Tom Mcphail has spoken up for pensions as he has . The final thirty seconds of the clip make the simple point that “pensions are not supposed to be an inheritance tax planning vehicle for the wealthy.

Messaging to the nation

For most of us, the conversation we want to have is about adequacy, fairness and predictability – the agenda of the Minister for pensions.

There is no messaging from Sunak, Brown, Glen , Reeves or Starmer to this effect. Instead we are witnessing a debate about 15,000 people who the Office of Budget Responsibility believe will become more productive for being given certain tax-breaks on their retirement saving.

If I was Mel Stride, the DWP Secretary of State , I would be making this point in cabinet every time I could.

Yes, many of us over 50s are not as productive as we could be and yes, for a small proportion , the pension taxation rules are a disincentive to save.

Yes, the LTA and Annual Allowances are doubling up and we either have one or the other. But we cannot have a system of “exempt , exempt , taxed” which offers a tax exemption for those so wealthy in retirement that they don’t need to draw on their pension pot. We can’t have EET for the have nots and EEE for the haves.

Pensions aren’t a bequest and don’t need to be brought within the IHT net. Unspent pension pots do . The wealthy can avoid IHT  by exchanging pot for pension paying  income tax on pension income. If you want to create a common purpose for pensions, that’s the way to go about it.

We can’t have an anti-social pension policy

Pensions need to be part of the social fabric of Britain, we can’t have the wealthy with one set of rules and the rest of the country with another. We need a common purpose for pensions and a taxation system that supports it.

What we have at the moment is an anti-social tax-system that is divisive both politically and socially.

We need more thought on pension taxation and some strategic decisions rather than the current political opportunism. That is not too much to hope for.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Politicised pensions become anti-social.

  1. emigreeu says:

    The removal of the “tax on prudence” (LTA) should be seen for what it is.

    Correcting this mean politically motivated act is welcomed and long overdue.

    Pensions are a long term contract and essentially the deferment of income and capital today to provide income and capital beyond work.

    The LTA was the retrospective penalty which broke the long term contract and created many unintended consequences.

    Freezing or even reducing thresholds is a weapon to increase tax take.

    In the March 15th Budget tax take is due to increase by £55bn to 2027/8 while still borrowing to cover the deficit .

    The U.K. is just not productive enough to meet its expectations. Will others continue to buy U.K. debt?

    Inflation at 2.9% by the end of this year going to be difficult to achieve. Our models indicate that 4% over the next 10 years might be more realistic.

    Under these conditions Living standards will continue to slide in the U.K. so let’s hope I am wrong

    • jnamdoc says:

      The minute we start talking about wealth and tax it becomes political and our biases flavour our assessment.
      The system is designed to funnel our savings over to insurers at some stage, and with a compulsory market (and income stream) we can see why insurers offer such poor value in terms of annuity rates.
      Because of this poor value and service, savers (for that is what we are) look for some element of choice about how to access their retirement savings. If there was no (small) comfort of knowing that in the case of an early death there will be no punitive IHT, many may chose to transfer their savings to their children.
      Having just said that – I realise that may be no bad thing; one of the factors that lead us needing to have such a heavily reliance on personal “pensions” is because the post-war baby-boomers, living for themselves, haven’t invested in their children or family, and so many can’t expect the reciprocation in their dottage when they (we’ll) rightly be farmed off into “retirement homes”.

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