Making pensions ‘sexy’

Alison Steed

Alison Steed

The difference comes because HM Revenue & Customs is now using real-time pensions data from providers, so rather than an estimate we have facts.

It seems the estimates were considerably off.

Analysis by Royal London showed the overall cost of the pension tax relief came in at £38.4bn in the 2017-18 tax year, which is more than £5bn less than previously thought. 

Sir Steve Webb, former pensions minister and director of policy at Royal London, said: “It is clear that pensioners who have worked hard and saved hard are putting billions extra back into the economy through the tax on their pensions.”

Agreed, and this does nothing to improve the perception of pensions for those young enough to make real in-roads into the benefits these savings plans provide.

The obvious alternative savings plan for your future is an Isa, which can be accessed at any time and has the tax relief on the way out, rather than the way in. 

The benefits to be gained from not being taxed on your income in retirement are considerable, since your earnings and earning power will diminish at that stage. 

Keeping an additional 20 per cent of the money coming to you is probably more beneficial than losing it to the taxman. Of course, you lose the compounded benefits of the tax relief on the way in, so it is not a perfect solution.

So, perhaps what we should be looking at is a scheme that gives you access sooner, some tax relief on the way in and then better rates of income tax on the way out, so you lose less when you need it the most.

Perhaps that would help to encourage younger people to save more, because if they needed money in an emergency, they could access it.

This would be a hybrid between an Isa and a pension, with lower early reliefs but lower income tax at retirement. 

The chances are this has been suggested and discounted already, but one thing is for sure: if we want people to want to save into a pension rather than having to coerce them into it, then perhaps it is time we all, as an industry, came up with other solutions that will resonate more with the general population.

Alison Steed is a freelance journalist