Oct 11 2017

Budget means more threats to pensions

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Another Budget looming and that means fresh warnings of threats to pension tax relief.

It is tempting to take these with a pinch of salt as the warnings seem as inevitable as the Budgets. But chancellor Philip Hammond has already shown that he has little concept of fairness or political nous when presented with an alluring spreadsheet.

Just think of his attack on the self-employed through Class 4 National Insurance increases – something he will no doubt repeat now he seems firmly entrenched at the Treasury.

The most likely target appears to be the annual allowance

There has been some talk of another cut in the pensions lifetime allowance, but this is unlikely given that the government has already set up a formula for an annual inflation-linked increase based on the previous September’s CPI.

The most likely target appears to be the annual allowance, which some believe could be cut from £40,000 to £30,000. This would be another blow to the self-employed and those with erratic earnings.

I have never seen the point of having a contribution annual allowance as well as an overall lifetime allowance – with both calculated on different bases. Surely one or the other should suffice?

The lifetime allowance punishes those who make good investment choices, while the annual allowance punishes those who perhaps run a business and only take the money out close to retirement.

Let us not forget that the annual allowance originally stood at £200,000 precisely because Gordon Brown, as chancellor, recognised the need to offer an option for those who spent a lifetime running a small business.

It is ironic that Conservative chancellors have gradually sought to close the option, regarding it as a tax loophole rather than a legitimate savings opportunity for those who work in the engine room of our economy.

Could there be more radical changes on the horizon, such as altering the rates of tax relief? I doubt it. This government is much too weak to undertake any major changes that might cause a political row.

Of course, he might look at MPs' own pensions and decided they are unfairly generous. But then pigs might also fly.

Anniversary of the 1987 crash

There is nothing like an anniversary to set the press releases tumbling out, so over the next couple of weeks we can expect to see plenty about the 30th anniversary of the 1987 crash. 

This, coming just days after the Great Storm, leaves October 1987 firmly etched in the national psyche.

This was a real crash, unlike the gradual longer term declines that have hit the stock market since.

At that time I was soon to become a shareholder for the first time via BT and had decided BP was not for me.

I recall the distress of one freelance colleague in his early 60s who had all his pension money tied up in unit trusts. At the time it seemed his retirement plans had gone down the pan.

But recovery from the crash was remarkably quick, whereas after the more gradual market correction of 2000, it took the FTSE more than 15 years to reach new highs.

Lessons? Keep investing and keep reaping the dividends, because these are the real drivers of stock market gains.

Over the long term the market should reward those who back it, unless of course the whole market economy is to come crashing around our ears. 

Mind you, after listening to the rhetoric spilling from the Labour party conference, that no longer seems entirely implausible.

Reading the comments...

A couple of weeks ago I wrote a number of pieces on various aspects of pensions for the Daily Mail.

Occasionally I take a look at the message boards to see what sort of questions people are asking or what abuse they are delivering. The latter can occasionally be quite amusing such as the person who greeted a piece on solar panels with: "Just wait till your roof catches fire and your house burns down."

On this occasion I had written about the offers people were receiving to come out of their final salary pension schemes.

One person posted a message saying he had been offered 42 times his annual pension. 

I am not sure whether this was the pension he had accumulated at the time he left his job or his re-valued pension. But, being debt free and financially stable, he was clearly tempted to take the money and was being egged on to take the money by other contributors.

This is the highest offer I have yet heard of, so I am now wondering whether any of you have come across bigger offers?

Tony Hazell writes for the Daily Mail's Money Mail section