Dear politicians, stop meddling in pensions

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.

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.

For those earning more than £150,000, tax relief on pensions contributions would be slashed to 20p in the pound.

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.

First stop was Malcolm McLean, senior consultant at pension boffins Barnett Waddingham. He said: “If the UK government wants to encourage a credible savings culture then the current government and opposition need to finalise a definitive policy on where they want to get to with pension saving.

“If the goal posts are moved yet again, as Ed Balls suggests, then there is a risk of even more disenchantment among the British public regarding saving for retirement, which is surely the last thing anyone wants to achieve.’

Well said that man.

Next was Alan Steel of financial adviser Alan Steel Asset Management up in Linlithgow. Like Mr McLean, he was not backward in coming forward.

He told me: “Since 1997, UK governments have meddled with pensions legislation, broken promise after promise, and been unfair on serious long-term investors who contributed within their allowances but, because of their patience and the success of their strategies, have been crassly treated retrospectively, in a manner that’s frankly illegal.”

Taking a deep breath, he added: “So I want this government to promise not to reduce the lifetime allowance any further and guarantee that a saver’s tax-free cash entitlement will never be reduced.

“Finally, like the legal system that stands outside parliament, pensions from Budget Day onwards should then be ring-fenced and free-standing away from the clutches and whims of all governments.”

Emotive but no different from the views of others. Patrick Connolly of Chase de Vere said pensions “need cross-party agreement and a long-term strategy, which people can feel confident isn’t going to be chopped and changed every 20 minutes”. Danny Cox of Hargreaves Lansdown proposes “a moratorium on contribution and tax relief rule changes until 2018 when auto-enrolment has bedded in”.

There is more of the same but you get the picture. It is time politicians left us to save for our future.

Fat chance, of course. But it is something we can all wish for at night as the moths circle the bedroom light.

Jeff Prestridge is personal finance editor of the Mail on Sunday

Editor’s note: this column was written before the Budget on 19 March