- For a party based on the interests of workers, Labor has been bad for pensions
- Party to reintroduce the lifetime allowance, which the Tories are currently abolishing
- Threatening savers with taxes on retirement prudence only makes matters worse
Strangely enough, for a party based on workers’ interests and backed by the unions, labor policies have been terrible for pensions.
It goes a long way back. Gordon Brown’s move to abolish tax relief on pension fund dividends in 1997 was one of the largest cases of licensed theft ever committed by a resident of Number 11.
It took billions of pounds out of workers’ pension pots and was a major factor in the demise of Britain’s final salary schemes.
Now the party has said it will reintroduce the lifetime allowance, which the Conservatives are currently scrapping.
Such a move by Labor would result in a super tax on pension pots above the limit, currently just over £1 million.
Dynamic duo: Labor duo Rachel Reeves and Keir Starmer will punish pensioners
That sounds like a lot, but many reasonably wealthy professionals acquire this amount during their working lives.
It doesn’t equate to a Rockefeller-style pension: perhaps around £40,000 a year. Restoring the cap would punish people for investing wisely, pushing them to leave their jobs sooner than they would like, or than is good for society.
However, the Labor view seems to be that pension pots are the fruit of privilege, ripe for taxation. In reality, pensions are deferred rewards that employees have saved.
Vengeance aside, resetting the limit would be complex and counterproductive.
Many of those affected would give up work to avoid the tax surcharge, so this is unlikely to be a revenue booster.
A useless gesture. Worse, a message that sends exactly the wrong message at a time when the country needs to leverage its pension power. As my colleague Hamish McRae argued in the Mail on Sunday yesterday, politicians would be better off trying to undo the damage of the past rather than impose new tax penalties.
Reversing Brown’s raid and restoring dividend credits would help stem the rot in the city, which is in danger of losing its status as a world-class financial center.
In 1997, when Brown launched his ‘smash and grab’, pension funds and other major British investors owned almost half of British shares. They now only own 4 percent: look.
The real problem with pensions is not that a few people have built up a pot of more than £1 million and so need to be punished. It is true that so many people have not yet gathered sufficiently. ‘Generation
Most – unless they work in the public sector – arrived too late to benefit from a ‘gold-plated’ final salary pension, which guaranteed lifelong retirement income. Large numbers also missed years of automatic enrollment, which only arrived in 2012.
These midlifers, the oldest of whom are approaching their 60s, did not benefit from the housing market to the same extent as their Boomer predecessors. Many support children in college and care for elderly relatives.
Catherine Foot – director of Phoenix Insights – says up to 18 million people are financially unprepared for later life. A disproportionate share of them are women. Retirement savings has fallen lower on the priority list.
All politicians should encourage more retirement savings, especially in middle age. Threatening savers with a tax on pension prudence, as Labor is doing, does not help. It only makes matters worse because it increases the risks, uncertainty and complexity that hinder retirement savings.