It is also a long time when it comes to prevailing government policy towards pensions.
This time last week, I was singing for my afternoon tea at a splendid FTAdviser forum on retirement freedoms in London’s swanky Mayfair – before an audience of top-notch independent financial advisers (yes, I know, all advisers are top notch).
At the forum, which also featured key contributions from Pensions Minister Baroness Ros Altmann and Association of British Insurers’ director Yvonne Braun, I could not help but dedicate some time in my long-winded speech to mention the state of flux prevailing in pensions policy.
“Are we about to see the introduction of pension Isas?” I asked. “Or will a flat rate of tax relief on contributions replace the current system of relief that favours high earners?”
What I predicted, with my customary authority, was that the current pension status quo was about to change. How wrong I could be.
Today (9 March), I am singing again at another FTAdviser forum – but this time for my lunch and not in trendy Mayfair but in Birmingham, a city enjoying something of a renaissance with its resplendent Bullring shopping centre at its heart.
The main thrust of my speech will again be focused on retirement freedoms and in particular the growing threat of pension fraud perpetrated by so-called pension liberators (I would incarcerate every single one of them).
But this time, I will not be taking time out to talk about what George Osborne is planning to announce on pension reform in his Budget on 16 March. The pension horse, as we all know, has well and truly bolted. Like Joey did in Michael Morpurgo’s novel, War Horse.
The pension horse, as we all know, has well and truly bolted. Like Joey did in Michael Morpurgo’s novel, .After all the debate, argument and counter-argument, it seems as if Mr Osborne has bowed to political pressure within his own party.
Rather than embark upon radical pension reform, he has decided to put it on hold for fear of upsetting the middle class apple cart before the vote on Europe, scheduled for June 23. For the time being, the current system of tax relief on pension contributions is remaining.
So, some seven months of consulting in the wake of the publication of the Treasury document on ‘strengthening the incentive to save’ is being sidelined. There will be no ‘strengthening’, just more confusion, more prevarication and the perpetuation of a pensions system that is not fit for purpose.
Pension Isas, funded out of taxed pay, will now be put on the back-burner, as will a flat rate of tax relief on contributions.
In the wake of Osborne’s U-turn, Steve Webb, former pensions minister now earning his keep at Royal London, has called for the Government to rule out any changes in tax relief “at least for the rest of this parliament”. He sensibly argues that savers deserve a period of stability in which to save – rather than having to second guess all the time what the Government has up its pensions sleeve.
Yet I doubt that Mr Webb’s plea will be heeded. For a start, we already have two pension changes in train that will impact adversely on many savers once the new tax year starts.
The first is the impending reduction in the lifetime allowance from £1.25m to £1m. This will expose many savers’ pension funds to the threat of a 55 per cent tax.
As I said at the FT Adviser forum last week in London, this reduction is a spiteful move because it penalises pension success.
By all means, restrict savers’ ability to build their pensions through control of the annual allowance, but savers should then be left to enjoy the fruits of the fund they amass without worrying about the taxman coming round to take a slice of the action.
The second is a curtailment of the ability of additional rate taxpayers to fund their pensions through a restriction in their annual allowance. In some cases, the allowance will fall to £10,000, dependent upon earnings.
Once these two changes have been introduced, and June 23 is out of the way, I am sure Mr Osborne will then return to the pensions drawing board – way before the current parliament draws to an end. After all, he has the Government’s finances to repair.
Personally, I think it is time for pensions policy in this country to be depoliticised. We have had far too much meddling with pensions. This goes back to 1997 and Gordon Brown’s £5bn-a-year tax raid, a raid which hastened the demise of final salary pension schemes (in the private sector, not the public).
It has been continued by subsequent chancellors with a series of assaults on the lifetime savings allowance and other restrictions.
Governments, understandably, rarely think beyond the end of the current parliament. The result is on-the-hoof pension policy and changes which merely make a complicated system even more incomprehensible.
Surely, what would be best is for an independent pensions commission to be formed, whose role would be to decide upon the future pension framework in this country. Governments, current and future, would then be obliged to keep this framework in place.
If we went down this route, we could maybe create a pensions system devoid of complications and complexities – and that encouraged everyone to save for the future.
By removing the chopping and changing, we would also rebuild the country’s confidence in pensions as the main vehicle through which to fund retirement.
”Dream on” I hear you say? Maybe. But we cannot carry on as we are, seeing our pensions constantly tinkered with by short-sighted politicians.
Jeff Prestridge is personal finance editor at the Mail on Sunday
