The latest attack on pensions within the Pre-Budget Report, whereby the lifetime allowance and annual allowance is frozen for five years, yet again brings pensions into the political arena.
When proposing simplification in 2004, the Government's plans were that the Chancellor would set the limit for the lifetime allowance and annual allowance quinquennially in line with inflation. At conferences, the industry questioned Treasury officials on this, and was told categorically that levels would be raised. Some would say that with the stock market crash, is this an issue? Many of my clients have been in cash for the past year or two. Many have property portfolios let on blue-chip tenancies, and conservatively expect continued returns of 8.5%. Anyone with a pension fund of £1,200,000 today who achieves 7.5% return per annum over the next six years will breach the lifetime allowance and be paying significant tax out of his pension.
Personal Accounts are a classic example of the Government's failure to understand the law of unintended consequence. By forcing everyone to save 8% (gross) into a personal account, it sets not a minimum level, but an expected level. Pensions in Britain, once the envy of the world, will soon be based on a contribution expectation of 8% per annum. Why should executives contribute more for their employees when part of their own pension expectation is now being taxed at 55%? Why should they bother when the rules are too complex even for industry experts and the Government changes them annually?
The Government has presided over the highest level of personal debt ever, and set the example by borrowing more themselves. Our children are expected to leave university with a student loan of at least their first year's salary. With that level of debt, it is unreal; there is no hope of paying it back in the foreseeable future, so when the uncontrolled banks offer a further loan, then why not accept it? What is the real difference between owing one or two times your salary?
As a nation, we really must get back to simple sustainable rules based on common sense.
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