I have just spent a merry six days drifting along the trails that take walkers though the Tramuntana mountains on the majestic island of Mallorca.
I highly recommend it for anyone who wants to take a break from financial services for a wee while – recharge the brain cells and all that.
Richard Jennings, director of Kineton-based adviser JNJ Financial Management, is often a visitor to the island although he prefers Port de Soller as a base from which to recover from everything the Financial Conduct Authority (and the occasional client) throws at him.
Alan Steel of adviser business Alan Steel Asset Management in Linlithgow opts for Ibiza, but he says the Balearic air refreshes his financial parts like no other place on earth.
Staying in Banyalbufar, a sleepy town on the south west coast, stunning views were never far away and the food and wine were pretty good. Even the electrical storms in the middle of the night were thrilling as well as spectacular.
Wine, fish and secluded coves
During my stay I consumed a variety of fish not normally on my menu – stingray, dog fish and dolphinfish (not to be confused with dolphin). The Mallorcan wine was surprisingly delightful, especially the local Malvasia – described as the heart and soul of Banyalbufar.
I could not drink enough of it as befits a journalist who was trained in the late 1980s on a diet of wine and dover sole.
When not walking or running, there were plenty of secluded coves that I could drop down into and swim alone. Good for the soul (as opposed to the sole).
Most importantly, the Mallorcan trails gave me plenty of time to contemplate on the personal finance world I report upon for a living week in and week out – an industry that most of the time seems to lurch from one crisis to another.
If it is not a banking crisis (and we could be on the cusp of another one) it is a pension crisis or crises (crisis one: mounting deficits on many defined benefit company pension schemes, crisis two: the pitiful pension contributions made by most employees, on average 4 per cent according to official figures).
Pensions remain the hottest topic in financial town judged by my mailbag at The Mail on Sunday. Pension confusion – as well as crises – reign. Even during my time in Mallorca, emails from readers on key pension issues kept raining in.
Two weeks ago in this column, I argued that we needed a period of pension stability to ensue so people could once again re-engage with long term savings. I pleaded for the government to refrain from yet more meddling, whether through further changes to tax relief on contributions or yet more restrictions on the amount that can be put into a pension (by reducing the lifetime allowance or the limit on annual contributions).
I am still of this opinion, but I would not be averse to a little government ‘meddling’ if it resulted in simplification and greater freedom.
Good pension management
One welcome change would be the abolition of the lifetime allowance. I have never been convinced by the merit of this taxation tool, which penalises successful pension management (and I say this without vested interest).
Introduced in 2006 by Labour at a level of £1.5m, it rose to £1.8m in 2010. Since then, it has been systematically chipped away at and now stands at £1m. The result is that the reduced allowance is creating a juicier stream of tax revenue as more people get caught by it.
In the tax year just gone, the government received lifetime allowance tax charges of £126m, nearly £50m more than in the previous tax year. With the lower £1m limit kicking in at the start of the current tax year, this year’s tax take will be even higher.
Gary Smith, a respected financial planner at wealth manager Tilney, talks a lot of sense when it comes to pensions. Recently, he said the lifetime allowance was ‘no longer fit for purpose’. Bang on the mark.
He also argued the way the allowance is calculated for those lucky enough to have pension money tucked away inside a defined benefit scheme means they get a much better deal.
He calculates that members of such schemes can accrue an annual pension of £43,500 before lifetime allowance tax charges become an issue. For someone who privately funds a pension and buys a matching annuity of £43,500, they would require a retirement fund in excess of £2.1m.
Mr Smith says Chancellor Philip Hammond has two choices. He should set different lifetime allowance limits for defined benefit and defined contribution pension schemes, or he should scrap the lifetime allowance altogether.
Post personal finance contemplation in the Mallorcan sunshine – and rain – I know what option Mr Hammond should go for. Be done with the lifetime allowance for ever more.
Jeff Prestridge is personal finance editor of the Mail on Sunday
