A couple of weeks ago, the coalition presented its latest Budget. This was quickly followed by the usual hyperbolic headlines based on the big news from the Chancellor’s speech. This year, all the attention was focused on the granny tax, which has caused a fair amount of uproar.
But fast-forward a couple of weeks and the dust is starting to settle, giving us a clearer picture of what the real implications are.
It is at times like this that it is handy to have an expert on hand who has seen it all before and knows where to find the devil amongst all the detail. And luckily for me, I work with just such an expert – Steve Bee.
Having discussed the budget and its implications with the pensions guru himself, it is clear that the big news has been overlooked. The granny tax will not actually be taking any money from anyone and will no doubt be condemned to the same pit as all the other long-forgotten pensions changes which so riled everyone when they were announced.
The really big news is the fact that we are starting to see the end of the granny stealth tax. It is not something that is being widely reported because I doubt many of you even knew it existed. It is a very real tax that we have been living with for decades. It relates to means-tested handouts, mostly savings credit and pension credit, that have been available to pensioners who have been persistent enough to claim them.
However, many have found that claiming them meant giving up some of the real value of their pension. It has also meant that some savers have been left in exactly the same financial position in retirement as their non-saving neighbours.
I doubt anyone reading this would think for one moment that this was fair and yet the headlines highlighting this outrage have been few and far between.
According to Bee, there finally appears to be light at the end of the tunnel. In the past, many of the older people who have lost the value of some or all of their pension savings have lost the value of their state second pension entitlements.
However, the new pension reforms introduce automatic enrolment into the equation. Automatically enrolled employees may opt out of the pension schemes that their employers put them in. It could have made sense to do so if you knew for sure that you would become entitled to income support in retirement.
The Budget has signalled that we will be implementing a decent, subsistence-level basic state pension. At last.
Our previous system meant that a pound saved in a pension did not make the saver a pound better off than a non-saver which is just ludicrous.
Hopefully, for next year’s Budget, we can shift past the sound bites and truly see the implications, because for once, they are actually pretty good. It is a shame we were not better informed of this.
Paul Hogarth is founder of Paradigm Partners