OpinionAug 26 2015

Pension-itis epidemic

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Pension-itis epidemic
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At about this time every year I suffer from a terrible bout of holiday blues. Not surprisingly, 2015 is no exception. I’ve got it bad – in fact, real bad.

A week in Mallorca, a beautiful island, didn’t help. What a joy it was to walk in the mountains – Serra de Tramuntana – without it pouring down with rain as is my usual fate when I go up to the Lake District. I will be back to trample its paths and trails before not too long, that’s for sure. Goodbye windy Fairfield, hello sun-kissed Puig Major.

Post-Balearic exertions and thrills, I then made the cardinal mistake of not returning to work but instead waddling off to walk a few slices of the South West Coastal Path – 630 miles of trails that take the walker through some of Britain’s most stunning coastal scenery.

I recommend it to all financial advisers keen to lick themselves into shape before doing battle with the regulator in the autumn (indeed, one adviser currently seeking to get re-authorised joined me on my journey and she felt rejuvenated by the path’s undulations). If you catch the right day, the coastal path offers you views of a turquoise sea, lazy seals and golden sands.

This year, however, it is not just a double bout of holiday blues that I am suffering from. My GP – a lovely gentleman – has confirmed that I have also gone down with a dose of something called ‘pensionitis’ (naturally he has prescribed a course of antibiotics to remedy the condition).

In a nutshell, wherever I am, whoever I am with, and whatever I am doing (cleaning my car, listening to the Archers) I cannot stop thinking and talking about pensions. They have got into my bones and soul, and I cannot exorcise them. Even garlic has failed to work. Even my financial adviser acquaintance was bored rigid by my pensions chatter – something she told me as we went our separate ways. Sadly I doubt my antibiotics will cure my pensionitis. Only George Osborne, chancellor of the exchequer, has the medicine to do so.

Ever since he announced in his July Budget that he would be launching a review into the way people are incentivised for saving into pensions, pensionitis has taken grip. For those not suffering from my condition, the review is called ‘Strengthening the incentive to save: a consultation on pensions tax relief’.

Ever since Osborne announced pension freedoms in his July Budget, pensionitis has taken grip

Questions, questions, questions. Is Mr Osborne about to revolutionise the pensions landscape in a way that will make the pension freedom rules seem like a ripple?

Are different rates of tax relief on pension contributions about to go in favour of a flat rate for all? Or more dramatically, are pensions going to transmogrify and become Isa lookalikes with contributions paid out of net income but with all withdrawals post-age 55 being tax-free?

Although pensionitis is not contagious (so says my GP), it seems that others are suffering from the condition. In the past 10 days, a number of highly respected people have stood up and vented their pensions spleen. Like me, they are vexed by the government’s direction of travel on pensions. First to say his two pennies’-worth was Paul Johnson, director of the influential Institute of Fiscal Studies – an astute individual whose views are always worth absorbing.

In an opinion article for The Times, he articulated why the government – any financially astute government for that matter – would want to turn pensions into Isa clones. Not necessarily to strengthen the incentive to save, as the title of the consultation misleadingly suggests, but to give an immediate boost to tax revenues of more than £30bn a year – in Mr Johnson’s words “the single biggest tax-raising measure in living memory”. He then goes on to argue that the way pensions are currently taxed is “probably the right way”.

A few days later, Phil Loney, boss of mutual Royal London, used the publication of some pretty impressive first-half financial results – sales of drawdown products up to 61 per cent, individual pension sales up 56 per cent – to have his say on pension tax relief.

Using somewhat blunter language than Mr Johnson, he said that if pension savings were given the same tax treatment as Isas, it could pose “considerable risk to the government’s aim of creating a savings culture in the UK” – a culture in part fuelled by the government’s ongoing programme of auto-enrolling some 9m workers into pensions. He then made a killer point – one also made by Mr Johnson. He said: “There is no evidence that the promise of tax-free income, 25 to 30 years in the future, would be believed by the public, given the volume of changes to the pensions system over the last 25 years. Consequently, there is a real risk of a significant fall in savings, which are already too low in the UK.

“It would also create a parallel system which is wholly incompatible with people’s existing pension arrangements, would take years to develop and would increase the overall cost of pensions.”

In other words, what is to stop a future government from turning around in three years’ time and deciding to start taxing pension withdrawals again? Nothing. I trust Mr Osborne and pensions minister Baroness Altmann are taking note of these outbursts of pensionitis.

The message is loud and clear. Tax relief on pension contributions needs to stay. Until I hear such commitment from this government I fear that my pensionitis – antibiotics or no antibiotics – is here to stay.

Jeff Prestridge is personal finance editor of the Mail on Sunday