Chancellors come in all shapes and sizes, intent on stamping their brand of politics on to the nation’s finances. Sometimes, for better. Often, as with Ms Reeves’s disastrous Budget two days ago, for the worse.
Yet there is one trait that unites many Chancellors of recent times – the likes of Gordon Brown, Rishi Sunak and now Ms Reeves. It is that they treat our pensions with disdain – like political footballs, to be kicked around, tampered with at will and violated as they see fit.
Our pensions are viewed as cash cows to be milked for tax whenever political needs must. Of course, it’s wrong. In so doing, they make it extremely difficult for most of us to steer our long-term finances towards a place where a comfortable retirement is assured.
A set of pension rules one year, a new set the next. How can we plan against such a backdrop of perpetual change.
Mr Brown was the most brutal – the tough tackling Norman Hunter of his time – with a £5 billion a year tax raid on company pension funds in 1997.
At a stroke, he rang the death knell for company pensions that guaranteed workers a lifetime of retirement income based on years worked and their salary.
Today, bar the odd exception, such defined benefit pension plans are only to be found in the public sector (quelle surprise).
Mr Sunak was less destructive, but as Chancellor in 2021 he did upset the applecart by freezing the cap on the amount that could be held inside a pension without extra tax charges being applied.
One of his successors at No 11, Jeremy Hunt, saw the stupidity of a tax on successful pension investing and unfroze it three years later.
On Wednesday, Ms Reeves carried on this meddling by bringing pensions into the 40 pc inheritance tax net, from 2027. It’s a move that will be difficult to administer and will rip up the legacy plans many people have in place to ensure any unused pension upon their death is passed on tax-free to their children.
As former Pensions Minister Baroness Altmann says, this assault on pensions is a ‘really bad decision’ (she’s being polite).
Yet it’s not just this constant political meddling in pensions that is so destructive. It’s also that Chancellors are often quite happy to stand aside ahead of a Budget and let people make awful financial decisions on the back of pension rumours that they know are unfounded.
Ms Reeves is massively guilty on this front. If she was a true believer in the right to accumulate long-term wealth, she would surely have quelled straightway the rumour that she intended to restrict access to tax-free pension cash in Wednesday’s Budget (from the current maximum of £268,275 to £100,000).
Instead, Ms Reeves kept shtum, with the result that many people panicked and took tax-free cash that would have been better left invested inside their tax-friendly pension.
Such silence tells you all you need to know about Ms Reeves and her attitude towards your pension fund and your personal wealth creation plans.
At the end of the day, she really doesn’t care, other than viewing your wealth as a potential source of extra tax revenue to fund her grand spending plans.
Although the Chancellor didn’t send a wrecking ball through our pensions on Wednesday, it is my strong belief it will swing its way before 2029 comes around. So, my message to you today is to make pension hay while you can.
Now is not the time to sit on your hands. If your finances permit, use as much of the annual allowance of £60,000 as possible to turbo-charge your pension fund. I would be amazed if Ms Reeves didn’t slash back this generous allowance at some stage in the near future.
Also, if you’re a higher or additional rate taxpayer, take advantage of the respective 40 and 45 pc tax relief you currently enjoy on pension contributions.
A 30 pc flat rate of tax relief –irrespective of whether you are a basic, higher or additional rate taxpayer – is surely high up on Ms Reeves’s pensions ‘to do’ list. It’d tick her socialist boxes and advantage lower-paid workers over those who are better off.
If you work for a firm where the employer is happy to increase its contribution into your pension plan if you do the same, take up the offer. The more contributions you make, the greater the chance you give yourself of building a worthwhile fund.
Also, if you have kids, set up a pension for them. You can put away a maximum of £2,880 a year, which with 20 pc tax relief will boost the pension contribution to £3,600.
If you are thinking that now might be a good time to take tax-free cash – given 100 pc clarity on the maximum sum you can get – speak to a financial adviser who will ensure you make the right decision for your specific financial circumstances.
Indeed, if you took tax-free cash in the past 30 days and are now regretting it, you might be able to reverse the decision using the 30-day cooling off period.
Although the guillotine hasn’t come crashing down on tax-free cash in this Budget, there is no guarantee that it won’t do in a future one. So, if your right to access the cash is around the corner – or you have yet to exercise it – explore the option before next year’s Budget.
My final thought on pensions is a plea to Ms Reeves: be brave and put together a roadmap for pensions over the next five years and then stick to it.
It’s a view that former Pensions Minister Sir Steve Webb backs. Yesterday, he told me: ‘Rather than have the risk of annual Budget tinkering, the pensions regime should be seen as a stable environment in which savers can make long-term decisions and not have to revisit them on an annual basis. A pensions roadmap makes great sense.’
Well said that Sir. Chancellor, stop playing political football with our pensions.
