The Time Has Finally Come To Do Nothing

This morning a client – a business owner in his mid 50s – told me why he doesn’t put money into his pension.

He has a long term plan. He has identified the figure he wishes to reach by a given age. He had planned to use pensions as a way of getting there. With fingers in several business pies he needs flexibility as he doesn’t have any spare cash now, but he may have lots in a few years time. He therefore planned to catch up in a big way by making significant pension contributions.

Now he cannot achieve his goal due to successive changes in the rules reducing the contribution limits into pensions.

The net result is that he treats what pension he has accumulated like those enemies of Dr Who known as The Silence. When his pension value is not physically placed in front of him he forgets that it even exists.

His rant about not being able to trust Governments is one that I’m sure many advisers have heard before, and not just from business owners. If clients cannot trust politicians not to tinker with pensions, they cannot use pensions to plan for retirement.

Now I realise I could be accused of hypocrisy given that I proposed a radical pension change myself in this article. But the message from this client – and many other – is simple. Please stop messing about with pension rules. Even if they are not perfect, at least we know where we stand.

It’s not only successive Governments that are to blame. How many times in 25 years of watching Government budget announcements have I heard rumours that higher rate relief is going to be abolished? 25 times, that’s how many. Each and every budget.

Who starts these rumours? I’ve always suspected it might be the marketing departments of pension companies, trying to encourage panicky last minute pension contributions. Whoever it is, they seem to be able to cry wolf as many times as they like and the press still treat it as a story worthy of publication.

So here is my clarion call to the Government, to pension providers, commentators, IFAs, marketing departments, financial services industry journalists, personal finance journalists, Jeff Prestridge, myself, Tom McPhail, Uncle Tom Cobley, Ros Altman, and anyone else tempted to call for improvements to pension rules. Let us resist.

In fact, why not go one step further and Government announce that pension rules will not be changed for 10 years. Commit to leaving pensions alone for the foreseeable future, and allow confidence to slowly find its way back into the minds of the public. They – and their advisers – will be able to make long term plans once again without the worry that the goalposts will be moved.


5 thoughts on “The Time Has Finally Come To Do Nothing

  • Of course your client could contribute more than his annual allowance but only get basic rate on the excess above the annual allowance.

    The tax rules on contributions seem to change every year and it is really frustrating doing your planning on such a messy basis.

    Tax is only one driver though and I’m sure your client’s frustration would be tempered by the knowledge that he will probably contribute more in a year than most DC investors accumulate in their DC pots in a lifetime!

    The likelihood is that higher rate tax relief will go eventually. The current system still massively cross-subsidises the rich and is unsustainable.

    While he has missed the glory years when £200k could go in one year, your client has every reason to fill his boots at current levels of AA (especially as he doesn’t sound as if he’ll be hit by the £1.25m Cap.

  • Looking just at your client’s circumstances, I think he’s being unduly influenced by the negative hype. If his things come good as he expects, then he could potentially carry forward £40k – £50k (depending on the tax year in question) on top of his £40k allowance for the then tax year. Worst case, that’s a not-too-shabby £160k. I’m sure you’re trying to coax him not to cut off his nose to spite his face. The jackpot is not as big as he was hoping but a win is a win.

    In terms of changes to pensions rules, I find myself wanting to agree and disagree. I’ve long maintained that the most damaging thing politicians have done is not any one thing from their 25 years of tinkering but simply the act of moving the goalposts on a long-term savings vehicle. That’s the agree bit – obviously!

    The thing is, life’s goalposts have moved, too. People are living longer – much longer. And state retirement age still hasn’t got back to where it started (70) when so many never even reached that age. That ballooning time in retirement sees many changes in circumstances (e.g. divorcing senior citizens or changes in health). Shifting demographics have wrought severe damage on unfunded government pension promises. DB schemes have closed to new members and further accrual. Sparing the public sector from this has consequently hit the private sector harder. We are not short of reasons to re-think what retirement is and who is going to pay for what.

    Politicians’ tinkering has been motivated either by trying to get pension schemes to do more so governments don’t have to (changes to DB rules) or raising extra revenue from a captive audience (taxing dividends, diminishing AA and LTA, and so on). This tinkering has undermined confidence and, as it was never politicians’ intention, has not addressed how life has changed, either.

  • Hear, hear. What a simply brilliant and brilliantly simple idea! No changes to pension legislation for at least 10 years…well, we can all live in hope I suppose. I read the other day about the number of 50-somethings who have given up with personal pensions because they don’t see the point…there is something seriously wrong with our pension system when people lose faith in both accumulating and decumulating. A bit of transparency, certainty and consistency would go a long way to regain consumer trust in a broken system,

  • Hmmm. I hear you, Chris, but I don’t buy this one as it would make almost no difference to your punter.
    Bleating because he cannot now do something he has failed to do for a number of decades? Nah, he was NEVER going to contribute to his pension and is now pissed off because he can’t salt as much away as you’d been telling him he could. Tough shit.
    Andy’s right. He can still contribute a considerable amount to a pension, but his nose is put out of joint because he normally calls the shots and the goalposts have moved.
    That’s what happens with regulation – it’s forever moving, like tectonic plates or glaciers.So although a moratorium on dicking about with pensions regulation would be preferable, it’s not likely to happen any time soon.
    In any case, you’d only get people complaining that certain thresholds and limits weren’t getting reviewed often enough to the detriment of them/their clients/the members of their golf club.
    Your client failed to make full use of the regulations when they were there, but I’m sure he took advantage of others. The trouble with the self-employed (and I am one) is they can claim they have inconsistent income and so they will have to rely on realising capital from selling their business to produce a pension.
    That is true to an extent for entrepreneurs (which I am not), but that means they have either decided to use their capital in a different way. That isn’t necessarily NOT making a decision about investing in a pension, but deciding NOT to invest while they build their empire.
    The problem of the self-employed has been addressed in some of the more established DC pension regimes like Netherlands and Denmark.
    Dr David Knox, author of the Mercer Melbourne Global Pension Index believes a comprehensive pension system must include the self-employed and compel them to make provision for their future. Otherwise, they are playing the same lottery as those who believe their home will provide them with a pension (instead of a smaller home and a small pension).
    So, before I went off on one, I was saying no. No, because things could do with a bit of tweaking. No, because the law of unintended consequences may throw something up. But no mainly because you will never stop any government messing around with legislation unless it suits their policy.
    Look at the Tories now. The party that decries excessive intervention and says it has cut taxes. But has done nothing about the burgeoning middle section of taxpayers who are neither wealthy nor even that comfortable but are being sucked into higher rate taxation. Gordon Brown would be pleased.

  • I often wonder if I work in a different business when I listen to the negative stuff about pensions.
    We have a serious amount of client pension( embracing every type of pension ) money within Transact accounts and I don’t recall even one client ever mentioning charges or the various regulatory changes.
    Anyone can see that there are only a very small number affected by the Lifetime cap and the with the average UK pension pot continuing to hover around £40K the opportunities remain immense.
    The public has little confidence in saving for its future because we as an industry have never made this task either economic, easy or interesting.
    For decades we have used gobbledygook language and opaque contracts which always favoured the provider over the client. Information has usually been provided more than a year in arrears and presented in a way that needed lawyers and actuaries to explain it.
    In our business we found that once we gave people transparent online access to what was happening to their money and arranged it to meet their needs rather than ours they became and remained very enthusiastic about planning for their futures.
    Our experience encompasses all socio economic groups and even at a flat annual charge has given us a very profitable area of business.
    Old fashioned words but think outside the box and you can win.


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