There are chancellors of all shapes and sizes, determined to imprint their style of politics on the nation’s finances. Sometimes, for the better. Often, as with Mrs Reeves’ disastrous budget two days ago, it is for the worse.
However, there is one trait that unites many chancellors of recent times: people like Gordon Brown, Rishi Sunak and now Mrs Reeves. What happens is that they treat our pensions with disdain, like political footballs, which can be kicked, manipulated at will and violated as they see fit.
Our pensions are seen as cash cows that must be squeezed for taxes whenever political needs require it. Of course, it’s wrong. In doing so, they make it extremely difficult for most of us to direct our long-term finances to a place where a comfortable retirement is assured.
One set of pension rules one year, a new set the next. How can we plan in a context of perpetual change?
Mr Brown was the most brutal – the tough Norman Hunter stand-off of his time – with a £5bn-a-year tax raid on company pension funds in 1997.
With a stroke of a pen, he gave the death knell to company pensions that guaranteed workers a lifetime retirement income based on years worked and their salary.
Today, with some exceptions, these defined benefit pension plans are only found in the public sector (quelle surprise).
Sunak was less destructive, but as Chancellor in 2021 he disrupted the situation by freezing the limit on the amount that could be held in a pension without additional tax charges being applied.
One of his successors at No 11, Jeremy Hunt, saw the stupidity of a tax on successful pension investments and unfrozen it three years later.
On Wednesday, Ms Reeves continued this meddling by including pensions in the 40 per cent net inheritance tax, starting in 2027. It is a measure that will be difficult to administer and will destroy the legacy plans that many people have for ensuring any unused pension upon your death is passed tax-free to your children.
As former Pensions Minister Baroness Altmann says, this attack on pensions is a “very bad decision” (she’s being polite).
However, it is not just this constant political meddling in pensions that is so destructive. It’s also that Chancellors are often very happy to sit on the sidelines before a Budget and let people make terrible financial decisions based on pension rumors that they know are unfounded.
Mrs. Reeves is tremendously guilty on this front. If she were a true believer in the right to build wealth over the long term, she would surely have immediately quashed the rumor that she intended to restrict access to tax-free pension cash in Wednesday’s budget (from the current maximum of £268,275 to £100,000). ).
Instead, Reeves kept quiet, with the result that many people panicked and took tax-free cash that would have been better left invested within their tax-free pension.
That silence tells you everything you need to know about Ms. Reeves and her attitude toward her pension fund and her personal wealth-building plans.
At the end of the day, she doesn’t really care, other than seeing her wealth as a potential source of additional tax revenue to fund her big spending plans.
Although the Chancellor didn’t send a wrecking ball to our pensions on Wednesday, I firmly believe it will make its way before 2029 arrives. So my message to you today is to make pensions work while you can.
Now is not the time to sit idly by. If your finances allow, use as much of the £60,000 annual allowance as possible to boost your pension fund. I would be surprised if Ms. Reeves doesn’t cut this generous allowance at some point in the near future.
Additionally, if you are a higher or additional rate taxpayer, take advantage of the respective 40 and 45 per cent tax reliefs you currently enjoy on pension contributions.
A flat rate of 30 per cent tax relief – regardless of whether you are a basic, higher or additional rate taxpayer – is surely high on Ms Reeves’ pensions ‘to do’ list. It would tick their socialist boxes and give lower-paid workers an advantage over those who are better off.
If you work for a company where the employer is willing to increase your contribution to your pension plan if you do the same, accept the offer. The more contributions you make, the better your chances of creating a worthwhile fund.
Also, if you have children, create a pension for them. You can save a maximum of £2,880 a year, which with 20 per cent tax relief will increase your pension contribution to £3,600.
If you’re thinking now might be a good time to take tax-free cash (given 100 per cent clarity on the maximum sum you can get), speak to a financial adviser who will ensure you make the right decision for your circumstances specific financials.
In fact, if you took tax-free cash in the last 30 days and now regret it, you may be able to reverse the decision using the 30-day cooling-off period.
Although the guillotine has not fallen on tax-free cash in this Budget, there is no guarantee it will not do so in the future. So, if your right to access cash is just around the corner – or you haven’t exercised it yet – explore the option ahead of next year’s Budget.
My final thought on pensions is a plea to Mrs Reeves: be brave and put together a pensions roadmap for the next five years and then stick to it.
It is a view supported by former Pensions Minister Sir Steve Webb. He told me yesterday: ‘Rather than run the risk of making annual budgetary adjustments, the pension scheme should be seen as a stable environment in which savers can make long-term decisions and not have to review them annually. “A pension roadmap makes a lot of sense.”
Well said sir. Chancellor, stop playing political football with our pensions.
- Jeff.prestridge@dailymail.co.uk
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