Chancellors come in all shapes and sizes, with the intention of putting their political stamp on the country’s finances. Sometimes for the better. Often for the worse, as with Ms. Reeves’ disastrous budget two days ago.
Yet there is one trait that unites many chancellors of recent times – including Gordon Brown, Rishi Sunak and now Mrs Reeves. It is that they treat our pensions with contempt – like political footballs, to be kicked, tampered with and violated at will.
Our pensions are seen as cash cows to be milked for taxes when political needs require it. Of course it’s wrong. In doing so, they make it extremely difficult for most of us to steer our long-term finances toward a place where a comfortable retirement is assured.
One set of pension rules one year, a new set the next year. How can we plan against such a backdrop of constant change?
Mr Brown was the most brazen – the heavy-handed Norman Hunter of his day – with a £5bn-a-year tax raid on company pension funds in 1997.
In one fell swoop, he sounded the death knell for company pensions that guaranteed employees a lifelong retirement income based on years worked and their salary.
Nowadays, with a few exceptions, such defined benefit plans can only be found in the public sector (quelle surprise).
Mr Sunak was less destructive, but as Chancellor in 2021 he shook things up by freezing the limit on the amount that could be held in a pension without incurring additional tax charges.
One of his successors at number 11, Jeremy Hunt, saw the folly of a tax on successful pension investments and abandoned it three years later.
On Wednesday, Ms Reeves continued this involvement by including the pensions in the net inheritance tax of 40% from 2027. It is a step that will be difficult to implement and will tear apart the existing plans that many people have put in place to secure any unused pension. their death is passed on to their children tax-free.
As former Pensions Minister Baroness Altmann says, this attack on pensions is a ‘very bad decision’ (she is polite).
Yet it is not just this continued political interference in pensions that is so destructive. It is also the case that Chancellors are often quite happy to step aside before a Budget and let people make terrible financial decisions based on pension rumors that they know are unfounded.
Ms. Reeves is extremely guilty on this front. If she really believed in the right to accumulate long-term wealth, she would surely have immediately quashed the rumor that she planned to limit access to tax-free pension money in Wednesday’s Budget (from the current maximum of £268,275 to £ 100,000). ).
Instead, Ms. Reeves remained silent, resulting in many people panicking and taking tax-free money that could have been better invested in their tax-efficient retirement.
Such silence tells you everything you need to know about Ms. Reeves and her attitude toward your retirement fund and your personal wealth creation plans.
Ultimately, she doesn’t care, except that she sees your wealth as a potential source of additional tax revenue to finance her big spending plans.
Although the Chancellor did not send a wrecking ball through our pensions on Wednesday, I strongly believe it will swing his way before 2029 arrives. So my message to you today is: enjoy your pension while you still can.
Now is not the time to sit on your hands. If your finances allow it, you can use as much of the £60,000 annual allowance as possible to boost your pension fund. I would be surprised if Ms. Reeves did not scale back this generous allowance at some point in the near future.
If you are a taxpayer at a higher or additional rate, take advantage of the respective 40 and 45 pc tax reductions. that you currently enjoy on pension contributions.
A lump sum tax break of 30 percent – regardless of whether you are a basic, senior or additional taxpayer – is certainly high on Ms Reeves’ retirement list. It would tick her socialist boxes and favor lower-paid workers over those who are better off.
If you work for a company where the employer would like to increase their contribution to your pension plan if you do the same, take them up on the offer. The more contributions you make, the greater chance you give yourself of building a valuable fund.
And if you have children, arrange a pension for them. You can put aside up to £2,880 per year, which with a 20% tax reduction will increase the pension contribution to £3,600.
If you think this is a good time to take tax-free cash – if you are 100% clear about the maximum amount you can get – contact a financial advisor who will ensure you make the right decision for your specific financial circumstances.
If you made tax-free cash withdrawals in the last 30 days and now regret it, you may be able to reverse the decision using the 30-day cooling-off period.
Although the guillotine has not fallen to tax-free money in this Budget, there is no guarantee that this will not be the case in the future. So if your right to access the money is close – or you have yet to exercise it – explore the option before next year’s Budget.
My final thought on pensions is a plea to Mrs Reeves: be brave and set a roadmap for pensions over the next five years, and then stick to it.
It is a position that former Pensions Secretary Sir Steve Webb supports. Yesterday he said to me: ‘Rather than running the risk of annual budget tinkering, the pension system should be seen as a stable environment in which savers can make long-term decisions and not have to review them every year. A pension roadmap is very useful.’
Well said sir. Chancellor, stop playing political football with our pensions.
- Jeff.prestridge@dailymail.co.uk
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