Alistair Cunningham: Prepare for a decade of pensions disappointment


It is 2025 and I would like to share with you the lessons learnt from a decade of failed promise in the world of financial services. In 2015, HM Treasury invited responses to a consultation on pension tax relief. At the time it was heralded as an opportunity to revitalise the long-term savings market. In hindsight, however, it was a cynical ploy to raise additional revenue from pension funds, while scrapping valuable reliefs.

So what went wrong? To start with, the prevailing Government went with populist sentiment: unrestricted access to the UK’s £400bn of private pensions. In the 2020/21 tax year, the income tax paid from withdrawal of these funds, when defined benefit transfers were also taken into account, was £200bn – nearly a quarter of the national debt.

The new regime introduced a flat rate of tax relief: 30 per cent on contributions from individuals and a similar relief if contributions where made by an employer. Workplace pensions were allowed to continue on the old regime; an unnecessary complication for what, for most people, would be a modest income in retirement.

The problem with flat-rate relief was wealthier individuals shunned the reduced benefit when compared to historic marginal rates between 40 and 60 per cent. They erroneously informed their colleagues, employees and friends that new personal pensions were a ‘con’.

For poorer individuals 30 per cent relief was an improvement and reasonable benefit, particularly given the accessibility (frequently compared with Isas, which were abolished at the time). In 2022, when tax relief on NPPs was removed in the interest of ‘simplification’ there were no significant complaints. The good news? Despite several threats, lifetime allowances were never reduced. However, the £1m limit seems absurdly low when a pint of beer is £20.

Talking of extortionate figures, we received our regulatory fee invoice this week. The FSCS element represented the lion’s share as always. Personally, I think the claims handlers that specialise in compensation for those who accessed their pensions flexibly post-2015 have a lot to answer for. I read how the Ombudsman is principally handling complaints about advisers who retired several years ago after rubber-stamping swathes of DB transfers, with the other significant category being those pensioners who took their funds ‘against advice’.

I know many of us flagged this as an issue at the time but the Government turned a blind eye. After all, they have had three bites of the pensions cherry: economic stimulus when pensions were accessed, tax revenue on the withdrawals and now the ‘benefit’ of those spending their compensation.

Britain is more divided than ever. Clearly this is a national publication and I do not mean to rub salt in anyone’s wounds but my Surrey-based clients have never been wealthier. Well advised (if I say so myself), they have profited from the consistent changes. In addition devolution 2, which saw tax-raising powers moved to local authority levels, means the Conservative heartlands my clients live in have zero-rated inheritance tax and very low levels of income and capital gains. I feel quite sorry for those whose local authorities have tried to sabotage the national Government by raising these same taxes to over 50 per cent.

But it is not all bad news. For those who thought the future would be like Logan’s Run, the compulsory euthanasia of those past state pensions age was voted down by a landslide. We are also hosting the 2026 World Cup.

Alistair Cunningham is financial planning director at Wingate Financial Planning