Pension Contradiction

Pension tax relief cuts are on the Chancellor's agenda for the Autumn Budget in November. In short, Philip Hammond needs to fill 'a huge hole' in the Government's finances and there are few options on where to obtain hard cash without putting taxes up or cutting public spending……pensions therefore seem a logical target from a political perspective.

 

The Lifetime Allowance is the maximum anyone can save in a pension without incurring tax charges and is currently set at £1 million. Cutting the Lifetime Allowance from its current £1 million level is an option because it ‘passes the Daily Mail test’……in that most of the public thinks £1 million is ‘a lot of money’. Patronising, but that’s politics.

 

There is also the threat that the tax relief on pension investments (the amount the Government pays in when we invest our own money in pensions) will be reduced / capped / stopped.

 

Which all seems a huge contradiction. The Government wants us to save for retirement so we put less stress on welfare benefits later in life and are self-funding our later years. So much so, that it is a legal requirements for employers to offer, run and invest in employee pension schemes.

 

Yet at the same time, any reductions in tax benefits on offer from pensions gives the message, “don’t save too much”. It’s a classic short term view that each Government takes on a long term savings vehicle.

 

Is it any wonder that trust in pensions as a viable savings vehicle is at an all-time low?

 

As long as you read the Daily Mail, you should be just fine though.