Awaiting pension reforms

While the imponderables are many – will we leave the EU with or without a Brexit deal at the end of October, will the government actually survive the weeks ahead? – ‘probably’ seems the right term to use.

In the febrile political state our nation constantly finds itself in, we can take nothing for granted.

Maybe it will not be Mr Javid after all, but Labour’s John McDonnell delivering the next Budget – red box (how apposite) at the ready – intent on changing the country’s course.

If so, more fairness, greater public ownership of the nation’s assets, and sweeping changes to the way our wealth (especially inherited wealth) is taxed, will all be on the political agenda. Moves that would be welcomed by many – and probably feared by just as many.

In the febrile political state our nation constantly finds itself in, we can take nothing for granted

Irrespective of who delivers the next Budget, there is no doubt that an urgent overhaul of the pensions regime is in order.

Maybe it will not be a government priority (Conservative or Labour) given the Brexit factor, but it should be high up any chancellor’s to-do list.

All the evidence I see is that the current system governing the way we are incentivised to save for retirement has become mind-bogglingly complex and unsustainable.

Indeed, in some cases, people are now being disincentivised to save, either as a result of a draconian pension regime (think doctors and NHS pensions) or because pensions simply bewilder them (think everyone else).

A recent report by Aviva confirmed as much. It revealed that some 64 per cent of workers aged 45 and over (8.9m employees) have no idea how much they should be saving in a pension to give them financial comfort in retirement.

Defined contribution? Defined benefit? Career average? Contracted in or out? They have not got a clue. They are roundly baffled.

As if that was not all depressing enough, most mature (mid-life) workers have little knowledge about how newish pension freedom rules (introduced in 2015) will impact on them, while 43 per cent are unaware of how much state pension they will be eligible for, and when it will kick in.

Not surprising given the gradual notching up of the state retirement age and the determination of some such as the Centre for Social Justice to see it rise to 70 by 2028 and then to 75 by 2035.

Yes, pensions are a right hotchpotch as Aviva’s Lindsey Rix, managing director of savings and retirement, opined in announcing her company’s research.

She says: “Millions of mid-life employees are flying blind and fast towards their retirement.”

All rather worrying. Commendably, Aviva urges workers to see if their employers offer financial guidance through the workplace – for example, sessions with financial advisers.

But such schemes remain few and far between, restricted primarily to larger employers. Of course, wider access to financial advice would be a better solution, but that is not going to happen while we have the Financial Conduct Authority overseeing the nation’s financial services industry.

So what should happen to pensions? As part of a Save Our Pensions campaign launched by The Mail on Sunday, I recently drew up a blueprint for a better retirement. The abolition of allowances was very much at its core.

I called for the end of the lifetime allowance, a scrapping of the overly complicated tapered allowance, and the axing of the money purchase annual allowance.

Alongside this, I urged for a universal maximum annual allowance to be introduced, set at maybe £30,000 or £35,000.

I also called for a freshening up of the auto-enrolment rules so that more goes into employees’ pension pots – a spicing up that the government has conveniently pushed off into the long grass (the mid-2020s).

The blueprint was not drawn up on a whim. Nor is it influenced by politics. It was compiled on the basis of common sense. Constant government meddling in pensions has created a system that is not fit for purpose.

So we now have in place a pensions regime that (reasonably) sets limits on how much money we can pile into a pension, but then crazily penalises us (via the lifetime allowance) if our pension plan is well managed and enjoys investment success.

Equally, we have something called the tapered annual allowance that was introduced by chancellor George Osborne in 2016 to curtail the amount high earners can put into their pensions.

Yet its implementation has left nearly everyone – experts included – scratching their heads. Few people understand it.

No wonder Steve Webb, former pensions minister, describes the allowance as “irredeemable” and “should go”.

Since being appointed chancellor, Mr Javid has talked about the need to simplify of the county’s taxation system.

He could make a good start in the pensions arena – and that is without even tackling the biggest necessary pension reform of all: tax relief on contributions. Go on Mr Javid.

Jeff Prestridge is personal finance editor of the Mail on Sunday