You put a few grand in, take a few grand out. In-out, in-out, what’s it all about?
Britain’s pension regime, once the envy of the world, was this week described by a Tory peer as a ‘Hokey Cokey’ system in need of radical reform.
Baroness Altmann is a former Pensions Minister who’s devoted her career to campaigning for older workers and trying to unravel the kaleidoscope world of pension regulation. So if she says the system is a dog’s breakfast, we should take her word for it.
For the past 25 years, here today-gone tomorrow politicians have been tinkering with the rules, making long-term retirement planning impossible.
On Wednesday, in his Budget, Jeremy Hunt attempted to bring some clarity and stability by abolishing the just over £1 million limit on the amount we’re allowed to build up in our pension funds, before being clobbered by a punitive 55 per cent tax rate.
Jeremy Hunt attempted to bring some clarity and stability by abolishing the just over £1 million limit on the amount we’re allowed to build up in our pension funds
Baroness Altmann is a former Pensions Minister who’s devoted her career to campaigning for older workers and trying to unravel the kaleidoscope world of pension regulation (file image)
This was in part to stop NHS doctors and other over-50s retiring early, rather than face a hefty financial penalty.
You might have assumed Labour would be in favour of such a move. They’re always banging on about the need to recruit and retain more doctors, especially at a time when a record seven million people are waiting for operations. No such luck.
Shadow Chancellor Rachel Reeves’s utterly predictable knee-jerk reaction was to denounce it as a ‘tax cut for the rich’ and promise to reverse the measure if and when Labour wins the next election.
Keir Starmer, in full Max Headroom mode, was touting the same robotic message in a series of TV interviews yesterday.
Labour would rather peddle the politics of class envy and resentment than give a moment’s consideration to a serious plan to address an alarming shortage of doctors in the NHS and a general decline in the numbers of over-50s in the workforce since the pandemic.
If Reeves had engaged her brain before shooting off her mouth, she might have remembered that abolishing the lifetime £1 million allowance was a Labour idea in the first place.
As recently as last September, Shadow Health Secretary Wes Streeting proposed scrapping what he described as the ‘crazy’ cap, which was convincing NHS doctors and consultants to bale out long before retirement age.
Hilariously, Labour’s spin doctors were yesterday trying to pretend that Streeting was only proposing to abolish the limit for doctors working in the NHS, not the ‘rich’ in general.
So, let me get this straight. Labour doesn’t mind doctors getting rich, but it doesn’t want anyone else building up a £1 million-plus pension pot?
Of course, few people will ever hit that limit. A million pounds is still a lot of money, even if it has been seriously devalued since Del Boy first promised Rodney: ‘This time next year we’ll be mill-yonaires!’
But don’t forget, either, that most of those lucky enough to build up a £1 million pension fund will have been paying in most of their working lives, in some cases more than 40 years, with their contributions topped up by employers.
For at least the first half of those long careers they were actively encouraged through the tax system to save for their old age, so they wouldn’t become a burden on the state.
The premise was simple enough. Put enough away during your working lifetime and you were guaranteed a comfortable pension based on a proportion of your final salary when you hit 65.
Put enough away during your working lifetime and you were guaranteed a comfortable pension based on a proportion of your final salary when you hit 65 (file image)
If Reeves had engaged her brain before shooting off her mouth, she might have remembered that abolishing the lifetime £1 million allowance was a Labour idea in the first place (pictured at a Labour Party event, February 2023)
That system survived pretty much intact until the arrival of the New Labour government in 1997. Having committed not to increase headline rates of income tax, National Insurance or VAT during its first term, Chancellor Gordon Brown had to come up with some other way to raise money.
He alighted on pension funds, mounting the biggest raid since that notorious crook Captain Robert Maxwell — the Bouncing Czech — robbed the Daily Mirror pension fund blind a few years earlier.
Brown scrapped tax relief on the dividends pension providers received on their investments. Over the following decade, he raked in more than £100 billion to be frittered away on vanity projects and a vast expansion of the state.
Had that money been invested in the stock market instead of disappearing down the government gurgler, it is estimated that by the time the pandemic hit, pension funds would have been £230 billion better off.
The effect on retirement incomes was catastrophic. Before Labour came to power, virtually all of the FTSE 100 companies offered traditional final salary schemes to new employees. Today, none does.
And don’t get me started on Gordon selling off more than half of Britain’s precious gold reserves at the rock bottom of the market, for a fifth of what it would be worth today.
Brown may be the The Man Who Stole Your Old Age, as I dubbed him back then. But there are other villains, Tory and Lib Dem alike.
When George Osborne arrived at the Treasury in 2010, he couldn’t resist tinkering either. He was elected on a pledge to raise the inheritance tax threshold to £1 million, a promise quickly forgotten once he looked at the books and realised, as Labour admitted, ‘there’s no money left’.
Four years later he decided to make amends by turning his attention to pensions.
In future, he declared, anyone would be free to cash in their entire pension pot, not just 25 per cent, without having to pay the punitive 55p rate.
The Coalition’s Lib Dem Pension Minister Steve Webb celebrated by announcing that as far as he was concerned, people could blow the lot on buying a Lamborghini supercar, even if that meant they had to fall back on the state pension later.
So when today’s Lib Dems turn up their noses at Hunt’s latest proposal, you can take it with a shovel of Maldon’s finest sea salt.
Hunt is clearly trying to encourage over-50s — not just doctors — who have taken, or are thinking of taking, early retirement to either hang in there (pictured on Thursday)
Don’t get me started on Gordon selling off more than half of Britain’s precious gold reserves at the rock bottom of the market, for a fifth of what it would be worth today
The Coalition’s Lib Dem Pension Minister Steve Webb celebrated by announcing that as far as he was concerned, people could blow the lot on buying a Lamborghini supercar
Since then, the pensions cap has been up and down like Norwich City. And I noted yesterday that there are currently 420 used Lamborghinis for sale on Auto Trader, so perhaps those who did cash in their pensions under Osborne have subsequently thought better of it.
Not sure how Hunt’s announcement on Wednesday will help them. Or the millions who have already taken their permitted 25 per cent tax-free lump sum and are now drawing their pensions.
How are they supposed to re-enter the market? The road to hell is paved with good intentions, as well as used Lamborghinis.
Hunt is clearly trying to encourage over-50s — not just doctors — who have taken, or are thinking of taking, early retirement to either hang in there, or rejoin the workforce. Good luck with that.
Why would they, given that Labour has already declared that they will reverse the policy if they win the next election, which could be little more than a year away?
Who in their right mind would risk pumping more money into their pension right now in the near-certain knowledge the next government will claw it back in tax?
Mrs Thatcher used to maintain there was no alternative to her free-market agenda. Sadly, today, there seems to be no alternative to big-state, high tax-and-spend policies. There’s not a cigarette paper between the main parties, Hunt’s liberalising of the pension rules aside.
We’re already facing the highest tax burden since World War II and it’s going to get worse. Millions more are being dragged into paying both the lower and higher rates of income tax.
Although Labour is foaming at the mouth over so-called ‘fiscal drag’ under the Conservatives, Reeves and Starmer refuse to commit to raising the tax thresholds. That’s because they have no intention of lowering taxes.
Things can only get better under Labour? Do me a favour.
In light of the latest banking wobble, following the crisis at Credit Suisse this week, it would be a braver man than me, Gunga Din, who decided to pump more money into their retirement fund — or any other investment, for that matter.
Apart from cuckoo clocks and Toblerone, the Swiss are only famous for their allegedly rock-solid banking system. And if that’s going belly-up, what hope for the rest of us?
You’d be better off putting your pension on the favourite in the Cheltenham Gold Cup.
With politicians treating our pensions as a pot to be raided whenever they feel like it, to cover their own financial incompetence and incontinence, only a fool would trust any more of their hard-earned to our ‘Hokey Cokey’ system. And, sadly, that’s what it’s all about.