Martin Lewis points to fiscal drag on workers earnings, student debt and on pensioner exemption. This was a pension budget just not the way we see it.

Last night’s show focussed on the freezing of income tax bands to make it clear to people why they would pay more tax going forward, more tax than ever before.

What he didn’t mention but I wanted to ask, was why people who don’t like paying tax should not doing their saving for retirement by contributing into their workplace pension.

Yesterday I pointed out that the biggest issue for workers (for whom this budget was supposed to be for) was “fiscal drag”, the stealth rise in tax where tax brackets are frozen so that we pay more in tax as our wages increase every time we get a rise. It’s the kind of attack on our standard of living that you get when you buy a level annuity, it doesn’t look like you are getting a tax rise until inflation eats into your take home.

I pointed this out yesterday as the most important thing we should be talking about when selling the idea of contributions into pensions. Because pensions can negate the increases in tax if people choose to contribute earnings that would now be eaten up by higher taxes .

I’ll use this diagram, Martin Lewis used a similar diagram to explain how people are losing out to fiscal drag

There are lots of traps out there , most especially for those earning just above £100,000 but each tax bond should be revised each year by inflation , or average earnings – even some version of double or triple lock. That would be how people were protected from their take home being eroded over time. For now – the freezing of our  bands for income band mean we are liable to more tax on our pay rise than we need to pay.

But with their hands tied by various promises not to increase income tax rates, the only thing a chancellor can do these days is use the income tax bands to squeeze money out of us. It’s called “fiscal drag” but in my house it’s called a “stealth tax”

We can get out of paying this stealth tax by contributing voluntary contributions to our workplace pension .

The pension industry, including the ABI and Pensions UK should be explaining that this is way that people can get round the stealth tax of the budget.

The questions coming into Martin last night were around the fiscal drag and I think Martin missed a chance to explain that saving into a workplace pension does what saving into an ISA cannot do and that’s to combat fiscal drag. The public who watch Martin know what fiscal drag is, they know they are being beaten up but they may not have thought how pension contributions can swap tax for deferred pay in our later years – income that is unlikely to be taxed like our working income today (and I’m leaving national insurance here.

I made this point yesterday and I’ll keep on making it because we are not going to get people to adequacy through increases to semi- mandatory increases (the fabled 12% of earnings called on by TISA, ABI and Pensions UK). Much better is to get people to wake up to using payroll deductions to beat fiscal drags and boost their wage in retirement. Whatever the type of workplace pension , the tax treatment is the same, it’s a treatment that works in people’s favour and it’s offered us by the Treasury and HMRC to make long term plans to pay for our later years.

To sum up

To those who think this budget is not addressing pension contributions, then think of this.

The budget should be encouraging unions, advisers and employers to talk with staff who know from  Martin Lewis about fiscal drag,  to do their retirement saving in pension plans.

Please go back and read yesterday’s blog – it’s here

Watch Martin Lewis’ budget show. here.