In Focus: When Clients' Plans Change  

Why do Britons distrust pensions policy?

  • By reading this you should understand where policy has gone wrong.
  • Grasp an idea of the complexities of pension policy-making.
  • Be able to explain to clients how future policy changes affect them.
CPD
Approx.30min
Why do Britons distrust pensions policy?
 Public Domain Pictures via Pexels

Pension policy uncertainty is not a new phenomenon.

Indeed, generous yet expensive policies, such as pension tax relief and the state pension triple lock, are usually placed under the microscope whenever the public purse strings need to be tightened.

However, the onset of Covid-19 has only heightened such speculation throughout the previous two years.

Arguably, this was to be expected. The pandemic upended people’s day-to-day lives, threatened job security and essentially shut down the UK economy for prolonged periods of time, leaving personal finances stretched beyond recognition and businesses on the brink of collapse.

Under such circumstances, it was only right that the government step in to offer various forms of financial support.

Of course, these schemes – such as the furlough scheme and the Coronavirus Business Interruption Loan Scheme – were vitally important to helping individuals and businesses alike survive the pandemic.

However, they were incredibly expensive. In the last financial year, government borrowing reached £323.1bn – the highest annual figure since records began in 1947.

And of course, as the UK emerged from the worst of the pandemic, the government shifted focus from preservation to the payment of public debt and the pension sector appeared to be a high-profile target for cuts, much to the concern of savers and advisers alike.

Inconsistency and uncertainty

The first change was introduced during the government’s Spring Budget 2021, where it was announced that the lifetime allowance would be capped at £1,073,100 until 2026.

This meant that people who breached this savings threshold would be hit by a larger tax bill, essentially penalising those who have diligently saved for retirement, while increasing the government’s income.

While this is a recent policy overhaul, the public have already expressed disdain. In a recent survey among 1,268 UK adults aged 40 and over commissioned by My Pension Expert, it was revealed that one in nine (11 per cent) respondents believe it has impacted their retirement strategy.

Perhaps more notable was the announcement in September 2021 that the government would rebuke its manifesto promise to protect the state pension triple lock by suspending it for one year.

Unsurprisingly, savers were displeased with the decision; over half (53 per cent) of the respondents to My Pension Expert’s aforementioned survey opposed the decision, while two fifths (39 per cent) claim that it will impact their retirement finances.

However, it is not just definitive pension policies which have caused unease among Britons.

Ongoing uncertainty surrounding other policies is doing little to offer comfort to savers. In the weeks leading up to the Autumn Budget 2021, rumours of cuts to pension tax relief
dominated much of the personal finance press.

So too, did uncertainty surrounding the annual savings allowance, as well as considerations about extending the triple lock suspension.