Let pensions be simplified – but not to extinction

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Let pensions be simplified – but not to extinction
comment-speech

It was perhaps inevitable that a chancellor looking for cash in every nook and cranny would turn his attention to the £34bn that goes in pension tax relief.

It is worth considering his actual words in his Budget speech: “Pensions could be taxed like Isas. You pay in from taxed income – and it is tax-free when you take it out. And in between it receives a top-up from the government.”

No wonder some have thrown up their arms in horror. This would turn the current system on its head and leave the industry and tax system dealing with legacy pensions potentially for more than 60 years.

And what does he mean by a top-up? Is he referring to a general basic rate top-up, something closer to the 30p in the £1 suggested by some, or simply allowing dividends to accumulate tax-free?

I think it is fair to assume that any plans to reduce or scrap upfront tax relief will face serious opposition from within as well as outside government.

The Green Paper is being dressed up as an attempt to create a more sustainable pensions system.

But if the incentive to save is removed we could end up with no pension system at all.

If the incentive to save is removed we could end up with no pension system at all

If a pension operates like an Isa then why save into a pension at all? The Isa allowance more than caters for most people’s savings needs.

Some reform of the tax relief system is inevitable. A simple top-up system of, say, 30p for every £1 seems reasonable.

But even this could leave Isas looking more attractive to higher earners.

It is right that the chancellor has initiated this debate. The state pension has been overhauled and we do need a long-term solution for private pension savings to bring an end to the constant fiddling we have experienced over the past 15 years.

But Isa-style pensions are not the answer. Simplification is one thing – pressing the destruct button is something else altogether.

-------------------------------

Antisocial media, anybody?

My younger stepson Alex is constantly using the LinkedIn website with his work. I signed up several years ago but never looked at it again.

Encouraged by him, I updated my profile last year and was instantly deluged by emails from complete strangers congratulating me on a new job I had actually been doing for 10 years.

I am very uncomfortable revealing personal details on Twitter or Facebook. My extreme reaction to my data being shared led Alex to tell me I should just stay away from social media – advice I am happy to take. But despite my misgivings, social media is the way many of us communicate.

I know many in the personal finance world use it for business purposes, but I suspect that it is severely underused for making direct contact with the public.

There does not seem to be the immediacy that there is from some companies who deliver swift responses to any Twitter or Facebook comment.

I am as bad. I am quite happy to rabbit away in a newspaper column but making direct contact through social media is a step too far.

But I cannot help feeling that many of you are missing a trick. If I work out what it is I will let you know – but probably not by means of Twitter.

---------------------------------

Realise that equity

Increasing numbers of pensioners appear to be making good on the idea that ‘My home is my pension.’ More than £750m of equity was cashed in during the first six months of this year, according to Key Retirement.

The average amount released was a staggering £68,500, much of which appears to be going on perks such as holidays and home improvement, although some are doling out money to relatives.

Equity release has always seemed to me an eminently sensible option for those who want to stay in their homes, and understand what they are getting into – and that includes the potential effect on benefits.

Why sit at home in a draughty house where the roof needs mending if you are sitting on a pile of cash?