Dear politicians, stop meddling in pensions

Jeff Prestridge

Jeff Prestridge

Politicians are drawn to pensions (our pensions, not theirs) like moths to an artificial light.

Last week, I sat back and shook my head in disbelief as Ed Balls, shadow chancellor of the exchequer, outlined a key component of his party’s forthcoming election manifesto – a move designed to give 56,000 out-of-work youngsters between the ages of 18 and 24 the opportunity to have a job.

A noble political statement many would say. As a father with three sons between the ages of 18 and 24, all of whom have limited prospects of finding paid work post-university, I can see where Mr Balls is coming from.

Article continues after advert

But yet again, it is pensions that are to be pillaged to fund Labour’s jobs guarantee, a guarantee that they promise to commit to for the whole of the next parliament (assuming, of course, that Labour wins the next election).

Mr Balls said the cost of this jobs promise (£1.9bn in the first year, £900m annually in the following years) would be met partly by a one-off windfall tax on bankers’ bonuses (I certainly do not have a problem with that).

But, here is the horrible bit, it would also be met by a new tax raid on pensions. For those earning more than £150,000 (not me), tax relief on pensions contributions would be slashed to 20p in the pound, a move that would save the government between £900m and £1.3bn a year.

It did not take long for Mr Balls’ plans to draw criticism. David Ruffley, senior Conservative MP on the Treasury select committee, said this extra pensions tax raid would put people off saving.

“This is just updating Gordon Brown’s infamous attack on the savings industry,” he said, referring to the former chancellor of the exchequer’s move in 1997 to suck £5bn a year tax from our pensions, a move that we all now know did much to undermine the success of corporate pension provision in this country.

Although this is all a bit rich coming from Mr Ruffley, given the coalition’s impending cuts to both the lifetime and annual pension allowances, but a point well made.

The Institute for Fiscal Studies added its two pennyworth, stating that the restriction in pension tax relief is “really likely to complicate the pensions landscape” – and there was me thinking pensions, riddled with rules and regulations, could not get any more complicated.

And David Smith, wealth management director at private client investment adviser Bestinvest, encapsulated my thoughts when he said that “constant fiddling with pensions is having a crippling impact on public confidence in retirement savings”.

In the wake of Mr Balls’ proposals to levy yet another attack on pensions, I thought I would canvass a few views of my own.