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Steve Bee: Our pensions system has lost its purpose

A snap general election and everything is up in the air again. It may mean more changes to our pension system. Then again, it may not. All bets are off. Our job is just to keep watching and react to events completely outside our control. And that is true not just for those of us in the pensions industry but for all of us living in the group of countries we call the United Kingdom.

Many say the pensions triple-lock has had its day. Maybe it has. Who knows? Indeed, who really cares? If it does not go this time, it may go the time after that or at any other time in the name of intergenerational fairness or some other trendy cause or slogan.

The sad reality is that it will all depend on who will need certain people to vote for them rather than who needs the support of a secure pension as they age.

The same applies to the “granting” of tax relief on pension contributions. I cannot remember a Budget statement that was not preceded by acres of newsprint warning of the imminent loss of pension tax relief in the name of fairness and equality or some such notion or other. Perhaps this time there will be radical changes to that. Or perhaps not. Again, who knows or can really be bothered to care anymore? It will happen some time. Now is a good a time as any.

Our pension system has long lost any sense of purpose as far as those who rely on it are concerned. That we today regard as normal the fact highly skilled professionals are driven into retirement by crazy pension rules, and that a whole generation of women have been left utterly disillusioned by poorly communicated changes to state pension age says all we need to know about the state of the system.

The constant tinkering with rules and regulations in the name of who knows or cares what has already turned people against it. More tinkering, more changes, more innovations? Sure. Why not? Bring them on. No one cares any more.

The system no longer inspires or motivates ordinary people. It is just a sideshow for the average person and a Gordian Knot of complexity for those who toil in the industry to marvel at as they sit their professional exams in the study and memorising of complete pointlessness.

Saving for the future is something we should all do if we can. Spending less than we earn is clearly beneficial for all. Very few of us will want or be able to work all our adult days. Pensions were a good idea once: they helped us achieve all these good things.

And they were more powerful by far when actively encouraged by our employers and those in government. But those days are over now. We are on our own.

Steve Bee is director at Jargonfree Benefits

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. Sadly agree with the article. Pensions, other than if your in a Final Salary Civil Service scheme, are perceived by the HM Treasury as an expense rather than a benefit. With a burgeoning deficit and empty coffers they’ll be raiding children’s piggy banks before long:-(

  2. I personally think a big issue with pensions is the misinformation regularly published by the MSM that somehow the government tops up you taxed pension contributions. This leads to the calls of “why do high earners get their pensions topped up more than basic earners”. The pension rules could really be simplified by educating that contributions are deferred taxation and its a choice of if you want the government to tax your money now or later. An individual can then decide if a pension or ISA vehicle makes sense to them.

    A sensible AA should be in place (probably 40K with indexation applied), the LTA removed (All it does is reduce sensible investment into the world economy and encourage professionals to retire early and a sensible limit on the 25% tax free take from the pot limited to say £500K (again index linked). As for the pension taper it should be condemned into the same bad memory as George Osborne!

  3. Money Guidance 4th May 2017 at 3:47 pm

    Some may remark that this is a highly depressing and hyperbolic interpretation of a subject that many of us once enjoyed. I happen to agree with every word written here. Michael Johnson`s LISA will prevail and G60, R08, etc. will feature in “Burn after Reading 2”

  4. Geoff Hartnell 4th May 2017 at 4:03 pm

    How sad when one of the doyens of the industry has reached the point of exasperation and then once the anger has subsided….resignation.
    Steve it’s a great pity that everything you say resonates,whether it be the constant speculation regarding the future of tax relief or the ever revolving examination merry go round.
    We will simply end up with a split population, the majority who will be never be able to afford to retire and the balance who are the beneficiaries of gilt edged public sector pension schemes.

  5. Michael Hughes 4th May 2017 at 4:11 pm

    Come on now Steve, don’t lose your will to live, pensions can still be fun, I mean to say there are enough clowns about thinking up amendments new rules and regulations.

  6. Michael Hughes 4th May 2017 at 4:30 pm

    and just for the fun of it
    A public sector employee in an unfunded scheme retires on £70K p.a. (ignore tax free cash or PCLS whatever you wish to call it) His lifetime allowance calculation is £1.4 million an excess of £400k with a tax charge of 25% if taken as income equating to £100k.
    So where does the tax payment come from and where does it go, I will ask my prospective MP when he calls, perhaps he will know the answer.

  7. Julian Stevens 4th May 2017 at 10:34 pm

    Sounds like you’re ready to throw in the towel and ride off into the sunset Steve. Can’t say I’d blame you if you can afford to do so.

  8. I agree with Steve wholeheartedly, as one of those women whose life has been trashed by having my pension age increased by six years without them bothering to tell me. And the new, so called ‘flat-rate pension’ is another fine example of smoke-and-mirrors Tory policy. There’s a lot of people out there who actually believe they’re going to get the full amount; not if you were contracted out, matey, or have less than 35 years contributions (yet another thing that’s been tinkered with – this was increased from 30years to 35 with little notice).

  9. Trevor Harrington 5th May 2017 at 9:59 am

    Sadly … everything that Steve is saying is correct.

    The point at which pensions schemes became fair game for the Government of the day, to raid for extra taxation revenues, was indeed the day that pensions became totally unstable, and completely unreliable as a means to plan ones future in retirement.

    That day was in July 1997, two months after a general election where the Labour Party had been successfully elected on a “no tax increase” promise, whereupon Gordon Brown decided to tax the dividends inside private pension schemes. This, added to the various increased liabilities which were dropped on company pensions by Europe, such as equal widows benefits for same sex couples, none of which had been costed for by the schemes concerned, saw the inevitable continuing closure of private “Final Salary Schemes”.

    Democracy itself is at risk in this mater.

    After all, a basic principle of any democracy, and caring developed Nation, must surely be to provided for people in their older ages, when continuing to work is not a realistic option.

    There is more than enough tax revenue coming into the treasury coffers, in order to afford ALL the benefits that we could reasonably want as a developed caring society, and I have written many times about where the money has gone.

    The modern social cause is to redress the balance between the “haves” and the “have nots” in pensions. The clarion cry for social justice has moved on from the previous era of Labour exploitation, to that which we have now, where a lot of people have fantastically lucrative pensions, and many others do not now even have the basic requirement of a living pension at a reasonable age – I would say age 60.

    To allow unfunded pensions in the public sector to continue allowing retirements below age 65, and at pension incomes in excess of £40,000 per annum, when the state pension has been removed from ordinary men and women until age they reach age 67 is divisive to say the least.

    To allow those excessively large pensions, and early retirements on spurious medical grounds, which are then not latterly checked for validity, and the higher rate tax relief on contributions which helped fund them in the first place, is the stuff of civil war.

    If society is to survive, we must move to capping excessive pensions in both the public and the private sectors, we must remove spurious and fraudulent medical and early retirements, and even consider reviewing those who have retired on medical grounds which now miraculously no longer seem to have a medical problem.

    Only then can we redirect the wealth of the country to a fair pension system where people can just about live on a basic state pension from age 60 …. which was exactly what was intended when pensions were invented in the early part of the 20th century.

  10. Come on- we are just evolving into a different phase where people live longer, are better informed, demand more flexibility and having good tax efficient savings vehicles with easy access to values and topping up without excessive advice fees will be the future- so let’s stop moaning and get on with developing the best future where we can play our part effectively.

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