Breaking the golden rule of consulting, (don’t talk to clients about sex, religion or politics unless they raise it: in which case your views are the same as theirs and you let them do the talking), I’m going to stray into the murky world of the party manifestos and the bashing of the pensions system.
Actually, if you fastidiously treat all parties equally and express no preference you don’t actually break the rule. This is quite easy this week as the parties are bashing seemingly equally.
There is a lot of general disquiet about the proposals but we need to spell it out as it is and not mince our words nor deny the reasons for the measures:
- The reduction in lifetime allowance in the March budget is, arguably, more significant than the manifesto reductions in tax relief. A 20% reduction in the scope for pensions but no-one bats an eyelid.
- In terms of the state allowing tax-efficient retirement savings, the system is moving from an “income replacement” system to one of reducing state liabilities in the future. The state will allow a tax efficient system up to a certain point, and then no more.
- Given the fiscal and deficit position, and demographics, this was always likely to happen.
- The fact Mr Osborne introduced it shows that this is now cross-party policy, not that they would phrase it this way.
- The maximum scope in DB remains nearly double that for DC? Why? Most would prefer DC’s to rise rather than vice-versa but the difference is hard to defend.
- Tax relief for individuals for future contributions will reduce: whatever the shape of post 7 May 2015 government. The parties are simply offering different variants of this.
- Given the remaining fiscal crisis, like it or not, this was likely to happen too.
- This change is a particular negative for the self-employed, a point rarely noted.
- The expected increase in tax receipts may have a lot of double-counting and so are overstated. Some of the reduced higher rate relief was disappearing anyway due to the reduction in lifetime allowance. One suspects that calculations have not allowed for this.
- Calls for long term stability to the system are well-intentioned, but it isn’t going to happen.
- Calls for pensions to be taken out of party politics are also well-intentioned, but that also is not likely to happen. Some are hoping for an independent Pensions Commission. However, tax and tax relief seem political, as do state benefits, means-testing and all the rest. With £4 trillion of pension rights in Occupational, contract-based, state pension and public sector liabilities, how can it not be political?
On the negative side, a long-term system which does need stability is suffering knee-jerk proposed changes, many damaging, for the sake of saving a couple of billion pounds here and there out of a government budget circa £750 billion. Also, as we all know, the new freedom in retirement has some dangers and a communication and decision-making challenge.
But let us rejoice on the positive side. The system still leaves significant individual retirement savings scope for the vast majority, and much more so when allied to ISA allowances. (Let’s hope they leave ISAs alone for now). More people are saving too. The freedoms do increase choice and the best providers are creating some excellent communications tools. New committees will be examining value for money.
We can debate the merits or de-merits of the various proposals, but there are still many good changes happening, even if some of the bashing is painful….