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Have your say on the future of pensions

The UK Government is asking for our opinion on the future of pensions. It apparently wants to know how to incentivise people to save more for longer so we don’t wind up with an OAP underclass that hangs around post offices all day and shakes down youngsters for their pocket money.

The deets are in this consultation paper on pension tax relief reform.

Feedback is requested from engaged individuals. That description certainly fits the Monevator massive, so I’m going to sling in my two pennyworth in this article and I’d love it if you could add yours in our comments thread.

I’ll then bundle up our collective response and send it to HM Treasury, 1 Horse Guards Road as the Monevator community’s contribution.

That’s surely worth at least four pennies in anyone’s money!

Shaping the future of pensions

Because our golden years are stretching out for longer, the government wants pension reform to fit the following principles, as laid out in the paper:

  • It should encourage people to save enough during their working lives to meet their aspirations for a sufficient standard of living in retirement.
  • It should enable individuals to take personal responsibility for ensuring they have adequate savings for retirement.
  • It should be simple and transparent… Greater simplicity and transparency may encourage greater engagement with pension saving and strengthen the incentive for individuals to save into a pension.
  • It should build on the early success of automatic enrollment in encouraging new people to save more.
  • It should be sustainable. Any proposal for reform should also be in line with the government’s long-term fiscal strategy.

That last one is particularly interesting when twinned with the following statment:

The government wants to make sure that the system of support for pension saving encourages individuals to save a larger amount for a longer period of time.

The gross cost of pensions tax relief is significant. Including relief on both income tax and National Insurance contributions, the government forwent nearly £50 billion in 2013-14.

In other words, the reform sweet spot would prompt people to save more of their own money, enable the State to step back – and kibosh the “Please sir, can I have some more?” routine.

There’s a clear implication that relief may be less generous in the future, especially as only a third of the relief currently goes to basic rate tax payers (although perhaps that wouldn’t be so skewed if the higher rate tax bar had been moved up with inflation).

One suggested change is taxing pension contributions upfront while withdrawals are made tax-free. Pension tax relief would apply on the way out, not the way in, just like ISAs operate today.

This need not leave us any worse off but I can think of a slew of reasons why such a change would be a bad idea.

Promises, promises

The number one reason that a change to ISA-style funding would not get my vote is that trust in government is poor.

Every time the slightest change to pensions is mooted, our comment columns swarm with doomsters predicting political chicanery and Argentine-style confiscation.

So I can imagine the reaction to the mooted change: “Yeah, well, they’ve nixed upfront tax relief now and in ten years time they’ll abolish it at the other end, too. I’m burying my savings in a river bank.”

Such a conspiracy theory would be impossible to disprove.

Give me the bonus upfront, and at least I know I’ve got something out of the deal. Promise me help years from now and well, hey, given the current level of faith in the political elite, it’s hard to think of a better way to torpedo saving short of exchanging lottery tickets for contributions.

The real problem with the current incentives is that they’re poorly communicated, intangible and obscured by off-putting technical language that’s alien to most people.

That dissipates the power of those incentives to help people overcome the hurdles they face when trying to save.

It’s like handing people an amazing energy bar but marketing it as soap – all very well, but I don’t get how it’s gonna help me right now.

Why is pension saving so hard?

Have your say on the future of pensions

In my experience, the fundamental problems many people face when saving for their pension revolve around means, human nature and knowledge:

  • People are hard-pressed financially. A pension is seen as yet another expense but one that can be dealt with in the future. Much more imminent is putting food on the table, buying clothes, going to the pub, dealing with debts, the mortgage, and paying for a car or a wedding.
  • The future is another country. It’s easy to worry about it later. Especially as you might walk under a bus tomorrow or win the lottery or be able to cope better after a few pay rises. Anyway, there’s the State Pension right?
  • Direct contribution pensions are a complex area that few people have been given the educational tools to handle. How much do you need to save? What should you save into? What are equities and bonds, anyway? What’s a platform? The knowledge required is daunting and people can’t face it.
  • People don’t see the importance of early action and how compound interest can lift the weight from their shoulders. They don’t know how much more powerful a pound is if saved now in comparison to later.
  • Risk is completely mis-sold. People believe they could invest for 30 years and end up with nothing. Technically true but highly unlikely. Sadly, the human mind has a habit of blowing small risks out of all proportion.

In my view, the reasons people don’t save enough for their old age have far more in common with these sorts of realities than with the tax relief system.

Many people don’t understand how important saving is, how much they need to save, in what product, and for how long.

And, sadly, many don’t understand what help is available or how much difference it makes.

Communication, communication, communication

The antidote is trustworthy, straightforward guidance that suits the majority who struggle to engage.

Firstly, the incentive has to be upfront. Given the problem we all have with imagining the future, you’d have to be insane to think that offering tax relief years hence is more motivating than dangling loot now.

But you do need to make the offer obvious.

What do retailers do? They give us money off. Three for the price of two. Cashback. And in big bright happy shopper flashes.

This is the language that employer contributions and tax relief should be couched in.

A basic rate tax payer who saves £1,000 into their pension?

That’s £250 cash back!

If an employer matches with another £1,000 then you’re in for a £1,250 cash boost.

You’ve more than doubled your money!

This information should be on your payslip and in an annual statement from HMRC. Make it simple and make people feel smart for being on board.

The message should be this clear:

You saved: £1,000
Your employer added: £1,000
The government added: £250

Cash boost = £1,250

Total saved = £2,250

Who would turn down that kind of money?

Email the statement if it costs too much to post. If you didn’t take your maximum employer match, then the statement should show how much money you’ve given up in match and relief.

Hammer it home.

It’s true that if I – a personal finance blogger and investing nerd – really work hard at it, I can already see my employer match and work out my tax relief using my payslip. But the information is obscure and in small type and buried in lots of other numbers that are similarly mysterious.

This stuff should clangingly obvious. Otherwise it doesn’t sink in.

And don’t use terms like net income or gross income. Don’t use percentages or codes. Maybe that’s technically correct, but it impedes understanding. People don’t have time to learn to speak alien.

Hold a national design competition to create a brilliantly simple template for payslips and the annual statement. Ask employers to sign up to it in the interests of their workforce.

Saving more

With the incentives properly promoted, how do we get people to put the right amount in?

According to the consultation paper, the average employee contributes 9% of their annual income to defined contribution pension schemes.

But the Pensions Policy Institute says a low earner needs a total contribution rate of 11% to have a 75% chance of replacing their income. Median earners need to save 13%. High earners 14%.

I’ve read a lot about how we need to save 15% of income from wealth management advisors. Frankly, it would be another ball game entirely if a widely respected independent body put out that kind of guidance.

Again, the guidance should be boldly proclaimed on every pay slip and annual statement.

I imagine it might read something like:

The average person should save 15% of income to have a reasonable chance of retiring on 75% of their current income (including the State Pension), according to research by the ONS.

You are currently saving 5% of income. Please talk to your pension provider if you would like to change the amount you save.

Note, I’ve just made the above numbers up and have sadly been forced to break my own rule on percentages in the name of keeping the admin manageable.

There would need to be a debate on what a reasonable chance means and what figures would be used for the percentage of income people typically need in retirement. But the advice industry already revolves around rules of thumb like this so it shouldn’t be impossible to come to an agreement.

To address the issue of saving now – and saving early – I’d put in a compound interest line.

Something along the lines of:

Every £1 saved now is the equivalent of £1.50 saved in five years time.

Again, I’ve made the numbers up, but you get the gist.

Finally, when it comes to the mind-meltingly complex fund scene, Dutch-style collective pensions look like a good bet for reducing the confusion. The evidence suggests that on balance this system offers lower costs, better outcomes and higher rates of participation.

It wouldn’t surprise me at all if the higher participation rates are partly due to there being a consensus that signing up to these funds is a ‘good thing’.

That kind of reassurance is impossible to find amid the UK’s fragmented landscape.

Nudge, nudge

Many of my suggestions are a one-size-fits-no-one kind of a deal, but frankly, where defined contribution pensions are concerned, it’s a crapshoot anyway.

The best you can do is be roughly right and for all the talk of ‘bespoke solutions tailored to your personal circumstance’ it’s rules of thumb that, well, rule.

Most people need very basic guidance that points them in the right direction – and providing it doesn’t stop anyone from delving deeper into the topic and coming up with a solution that they think is better suited to them.

The current ‘you’re on your own’ model is every bit as conscious a design decision as my proposals.

The difference is that the existing nudge-free approach is demonstrably leaving huge numbers of people high and dry.

Take it steady,

The Accumulator

P.S. Here’s a summary list of questions that the report asks. Please have your say in the comments below and we’ll send the lot to the government’s pension and savings team as requested.

Pension reform consultation questions
{ 100 comments… add one }
  • 1 Nyul July 14, 2015, 9:16 am

    The current system is too complex for most people. A flat tax rebate rate would help I think. Part of the problem is that changing everything will confuse people even more.

    I recently convinced someone in the public sector to join their scheme and the primary argument that hit the spot was along the lines you said: “By doing this you get FREE money”

    I don’t trust governments at all, so on that basis alone am entirely against the government removing front-loaded tax rebates. I’d rather they flattened and lowered the rate. If gov got into trouble in years to come, we all know what would happen.

    My main concern with all of this is the lost returns on initial gross contributions. If I can put money into a pension from my gross, untaxed income then I get decades of returns on that extra money, and not all of it is taken away in retirement taxes. If the tax is applied at the start my seed pot will be smaller.

    My vote goes for simplifying the current system a bit so pensions are user-friendly like ISAs, rather than kicking the whole table over and starting again which as far as I can see only benefits government by saving it some money.

  • 2 Neverland July 14, 2015, 9:33 am

    No more tax free lump sums

    Pension contributions paid out of taxed income by an individual

    End all employer contributions including public sector pensions

    Personal contributions limited to c. £5,000 a year

    £1 for £2 matching by government each year up to c. £2,500 a year government contribution

    Ability to use unused prior contribution years up to retirement

    Drawable on state pension age minus five years

    Limit to 3% of fund value drawable a year

    No lifetime allowance

    Liable to inheritance tax

  • 3 Fremantle July 14, 2015, 9:58 am

    @Neverland, I think the remit is to increase participation, not decrease it!

    On the task at hand…

    People are loss averse. Payslips should show the potential tax relief and employer contributions they’d receive from pension contributions, then take it away from them as foregone tax relief and employer contribution.

    Include as part of the payslip an pension opt in form to start paying into the company pension scheme.

    Giving it to them and taking it away, even on paper, shows them exactly what they are missing out on.

    Teach children how to budget in school. Make pension contributions part of this. Children are great persuaders, just think of all the environmental propaganda that they bring home from school. Nothing like being guilted out by a 7 year old to make you recycle that gross tin of baked beans you used to throw in the rubbish. Use the same logic with pensions. Get children asking naive questions like who is going to pay to look after their parents when they are old. Make their parents feel guilty about relying on the taxes of their children to pay for the state pension.

  • 4 Neverland July 14, 2015, 10:19 am


    Better to allow everyone to built up a reasonable sum on retirement and spend the money saved elsewhere

    – infrastructure and housing
    – increasing employee productivity
    – reducing personal taxes

    The state coddles the already rich too much

  • 5 BeatTheSeasons July 14, 2015, 10:38 am

    If pensions are going to be taxed-exempt-exempt then they’re essentially the same as ISAs, so the two might as well be merged into one savings pot. You could be given the ‘cashback’ bonus on the way in (up to a certain limit), but lose it on anything you take out before a certain age. Ideally you would be allowed phased withdrawals throughout your life instead of being able to access nothing up to age 56 whatever life throws at you, and then suddenly 100% at age 57.

    The merger of SIPPs and and ISAs would have the following impacts:
    – Easier for everyone to understand
    – No year end tax calculations to work out SIPP contribution
    – An end to the SIPP vs ISA quandry
    – A flat rate rebate would be fairer than the current situation where your effective tax rate (paid as NI) is 12% for basic rate taxpayers but only 2% for higher rate taxpayers
    – New overall tax-free limits on savings, i.e preventing long-term ISA savers gaming the system by turning ISAs into de facto tax-free pension pots approaching £1m in addition to their other pensions
    – Limits to be designed smartly so contributions aren’t prevented, there is still no tax on capital gains or dividends within the vehicle, but tax is charged or any withdrawals over a certain level (or inheritance tax on death)

  • 6 Fremantle July 14, 2015, 10:48 am


    The only reason the current tax relief on pension coddles the rich is because of the progressive tax system. Broaden the tax system and tax receipts and tax relief are proportionately equal for all.

    One of the benefits of higher middle class pension savings is for diversity and competition between pension providers. Cut this market down, and the providers are less likely to service the market as efficiently. Ultimately this will impact the products available for lower income earners by increasing costs and reducing the diversity of products available.

  • 7 John B July 14, 2015, 10:53 am

    I agree about benefits on the way in, not out, so ideally I’d like the tax free lump sum removed and the saving passed on as greater input boost.

    Change must not be retrospective, so the value of existing contributions must not be reduced, else no-one will trust the Government not to do it with new contributions, and participation will fall.

    Any change that changes that creates 2 different classes of contributions with different tax implications will be hugely confusing as they will need to run in parallel for up to a century. (probably a reason not to get rid of the lump sum though)

    Pension funds should be subject to inheritance tax.

    A lifetime limit with harsh penalties based on value on access is very hard to predict, and prevents different risk strategies. The Lifetime limit should be only on contributions. I’d not have a problem just using the current rolling 3 year window for contributions TBH.

    Equal boost for all, irrespective of income or contribution level.

    Clarification that they will NOT be making the access age nearer the state pension age. My nightmare is planning for a 60 retirement, and struggling to make ends meet as they’ve upped the age to 65, while my funds have gone over the lifetime limit and are being taxed to death.

  • 8 Learner July 14, 2015, 10:57 am

    As an expat, more needs to be done to allow pensions to be transferred between countries. It’s a complete minefield currently, particularly for US but for many other citizens as well. eg:

    – US citizens face having their investments treated as foreign trusts, requiring tax filing fees that exceed the entire value of the asset, annually. There are no public US QROPS to transfer into.

    – HMRC this year “de-certified” nearly every QROPS in New Zealand.

    UK pensions are increasingly marooned in the UK with no possibility of relocation, while the value is gradually erased by punitive foreign tax treatment.

    If personal pensions cannot be moved, there is a huge risk in even starting one in the UK.

  • 9 Richard July 14, 2015, 11:13 am

    – End LTA; keep a reasonable annual allowance (say £50k).
    – Keep up-front tax relief (pension ISAs would kill pension saving dead, unless other incentives added…but if these are “jam tomorrow” I’d not trust them).
    – Keep the 25% tax-free lump sum (else less reason for basic rate tax-payers to save).
    – Make auto-enrolment compulsory (no opting out).
    – Raise the auto-enrolment total contribution to 15% – 20% over time (say 10 years).
    – If the auto-enrolment proposals were accepted I’d scrap the 25% tax-free lump sum. Indeed, I’d end the lump sum altogether.

    I’m a huge fan of auto-enrolment / workplace pensions. It gives every worker the chance of a career average pension. Funded at the time, and not by future generations.

    If someone starting a 40 or 50 year career knew that 15% of their salary (8% employee, 5% employer, 2% HMRC) would aggregate over time, it would be a huge boost. Over the next 40 – 50 years I’d phase out the state pension, as 15% compounded over 40 – 50 years with stockmarket gains should give more than adequate pension income on retirement.

    There would need to be other safeguards for those who could not (rather than would not) be in employment. Lifestyle choices would not be funded by the state, but genuine incapacity would be.

    Then in 50 years’ time we have a fully-funded, generous, pension for all workers, under-pinned by state support for those who, through no fault of their own, could not make those contributions. Those who deliberately take themselves out of the world of work would receive no sympathy, and little financial support.

    As my plan would be that workplace pensions would be compulsory, there’s less requirement to try to persuade people to contribute. The communication required would be regarding how much their final pension would be worth. So “You are 35. If you keep working for the next 30 years on your current salary of £20,000 your annual pension (which you can draw from 65) is likely to be £15,000 in today’s money.” Clearly there’d need to be small print on investment growth assumptions, etc.

    I’m also not too anti-annuities for most people. I’d like some system where very wealthy or “sophisticated” people had the sort of pension freedoms we have now, but those who are much less engaged with pensions or finance have to take an annuity.

    I would have much prefered the recent largesse over the living wage to have gone into enhanced Govt contributions to workplace pensions.

    Just my tuppence.

  • 10 Neverland July 14, 2015, 11:24 am


    We don’t have a progressive tax system

    We have a crazy tax system with crushing marginal rates at the bottom, in the middle and towards the top

    Meanwhile huge chunks of unearned income and capital are completely tax free because no one has the guts to attack vested interests unless they are in a union

  • 11 Fremantle July 14, 2015, 11:43 am


    I agree that marginal tax rates are a killer, particularly at the bottom, but these partly exist because of progressive income tax. I’m not sure I follow your claim that we don’t have a progressive tax system. Do you mean the net effect of the overall tax code? Our income tax rates are definitely classed as progressive under accepted definitions.

    What do you mean by unearned income? Do you mean property income alone? Or do you include income from all forms of capital? Even welfare is considered unearned by common definition.

    The cynic in me suggests that it is the unions themselves that are the vested interest now days given the low union participation rates in the private sector compared to the public.

  • 12 Neverland July 14, 2015, 11:53 am


    Examples of lack of “progression” in the tax system just off the top of my head:

    – inheritance tax threshold and exemptions
    – tax credit system
    – withdrawal of child benefit
    – withdrawal of personal allowance
    – lower taxation of capital gains
    – existence of non-dom system
    – low property taxes
    – tax deduction for interest payments in corporations

    You want to see a closed shop in action go look at the big 4 auditors not the RMT

  • 13 Fremantle July 14, 2015, 12:25 pm


    We’re using different definitions of progressive, from google… “A progressive tax is a tax in which the tax rate increases as the taxable amount increases”. IHT is progressive, if you have less than the threshold you pay none, above you pay 40%.

    I think we leave it here as we might be off-piste somewhat for the topic.

  • 14 Rob July 14, 2015, 12:31 pm

    The end of a fixed retirement age makes pensions an anachronism.
    People stop working full time at all sorts of ages so the question simply becomes:

    “When will I have enough money to live on for the rest of my life?”

    Why should people get a tax incentive to stop working?

    My view is that all tax incentives for pensions should be abolished.

    Make it a level planning field and let individuals decide how to split their spending between instant gratification now and delayed gratification at some point in the future. Which they may not reach. My first wife died at 48.

    One minor point. Governments do not lose tax revenue from pension allowances, it is just deferred spending.

    My only concession would be to ask for the removal of stamp duty on share purchases to encourage long-term investments.

  • 15 Mathmo July 14, 2015, 12:33 pm

    Pensions — on the face of it — are a bloody awful proposition. Tuck money away in a place where you can’t get it for years and years? Why would you?

    So you really really need to make it obviously worthwhile. The tax rebate on contribution is probably the biggest incentive — and look it happens just at the point where you make the decision to save. Instant gratification. Could that be restricted to BRT and still be a good incentive? Hmm. Probably. It’s marginal — pensions are an arbitrage on future tax rates (I believe I will pay a lower tax rate in the future so I’ll defer my income). If you are getting 20% relief on the way in to pay 20% on the way out — why bother?

    Could it be restricted to £50k a year and still be really good incentive? Definitely. ISAs have a cap.

    Removing the tax rebate makes it an ISA. And at least ISAs have flexibility to mean that you can take the money out if you see the government coming to steal your pension pot. You can also spend them on holidays and the deposit for a house and oops no retirement funds left.

    So you need a age-tied pot and you need an incentive to lock-in to that pot. The only lever to Government has to pull is a tax refund on contributions.

    * * *

    Incidentally the LTA is a nightmare — how do I know what my pension pot will be worth after decades? Perhaps I should stop saving now rather than face the risk of going over the LTA (or a future LTA). Restricting relief on the way in is good enough to remove the LTA.

    * * *

    The obvious answer here is to increase the cost to employers. Put the minimum wage up. Make pension contributions compulsory. Remove NI relief on pension contributions. Basically make it impossible for anyone to employ anyone ever again, in anything but the highest margin businesses. Move all un- and semi-skilled employment overseas and make Britain uncompetitive in all but lawyering and banking.

  • 16 vanguardfan July 14, 2015, 12:33 pm

    @TA I think your proposals all sound good. I also like @Richard’s wish list. I’d even support at least 50% of @Neverland’s proposals (but not the first three in the list).
    Of course it depends on what we’re really trying to achieve – is it a ‘fair’ system (I suspect there would be various ways of defining that!), is it a system that saves the taxpayer, or is it a system that provides the best outcomes in terms of numbers of pensioners living a decent life?

    I think any reform should seek to target tax reliefs to those who most need the incentive to save to supplement state pension – I like the idea of a flat rate relief for all as first proposed by Steve Webb I believe.
    The LTA as currently constructed seems bizarre and complex. I think limits should be based on contributions, like ISAs, either annually or, possibly over a lifetime.
    I also think there should be more incentives to help prevent people running down their pensions too soon. Tax free withdrawals would mitigate against this – at least with the current pension freedoms, the tax hit should encourage steadier withdrawals to some extent. Human nature is very ‘present’ orientated, its a known fact that people underestimate their longevity and fatalism/YOLO are potent emotions when a pension is no longer a future income stream but just the largest pile of money you’ve ever previously been able to get your hands on…

  • 17 weenie July 14, 2015, 12:34 pm

    Compulsory auto-enrolment, unless that person can prove that they are paying into an alternative pension plan.

    Financial education for both children and adults.

  • 18 Neverland July 14, 2015, 12:35 pm


    I am sympathetic to your point of view but the human mind and body wears out some time and its pretty sensible for people to be encouraged to save for that day. Otherwise other tax payers have to pick up the bill

  • 19 R July 14, 2015, 12:37 pm

    TA — Pension reform is a sensitive area that requires clear and stable rules over the long term. Since the current government cannot commit future governments, taking the time to develop a “national consensus” involving the major political parties would be important in my view. But this is out of the scope of the consultation.

  • 20 John Kingham July 14, 2015, 12:39 pm

    1. Change pensions so that that they are taxed on the way in and not on the way out like an ISA.

    2. Give everyone, regardless of tax rate, 20% “cash back”, or whatever rate gives the best tradeoff between cost and participation amongst those who most need to participate.

    3. Limit contributions to current year earnings.

    4. Make annuity purchase mandatory again (if you want to get your capital back use an ISA). This is the “price” of getting that 20% cash-back.

    5. Open up the annuity market as much as possible so that it is truly competitive (so property, crowdfunding, P2P lending and other things could provide “annuities”, as long as the income is guaranteed until death).

    – John

  • 21 vanguardfan July 14, 2015, 12:45 pm

    @TA this could soon win the prize for longest thread…
    I agree with R that this topic really merits a serious investigation, trying to achieve a broad and long lasting consensus, and taking more evidence from international examples. International portability is also important, but which government has an interest in promoting that?

    We need to try to reduce the political interference. I can’t believe that only months into the experiment in ‘pension freedoms’ they are flying kites about ideas which would essentially abolish pensions completely. We don’t need ‘pension ISAs’ – we’ve already got them.

  • 22 PC July 14, 2015, 12:58 pm

    Removing the Life Time Allowance is what would incentivise me the most to keep contributing to my pension.

  • 23 Jeff Beranek July 14, 2015, 1:11 pm

    Great ideas Accumulator and others. I would strongly support some sort of flat-rate or progressive “cash back” on contributions with a much lower annual allowance (combined with removal of the lifetime allowance). However don’t change pensions so much that they are no longer recognized as pensions by international tax treaties. While you’re at it, please please help make pensions portable internationally. Alternatively, create a direct equivalent of the American Roth IRA (https://en.wikipedia.org/wiki/Roth_IRA) which promotes gradual lifetime (taxed) contributions but freedom from tax in retirement.

  • 24 paullypips July 14, 2015, 1:14 pm

    Well I’m not sure that I’d like to see any major changes to the current system as I distrust the government. I feel that the treasury will see the “new” ideas as an opportunity to reduce their financial contribution going forward. The current system is complex but that is because it is flexible. I love the new freedoms brought about by George Osborne as I had already decided that an annuity was not for me.

    I agree with The Accumulator that education is the key to improved participation in pension membership. I have spent many hours discussing pensions with others and like to think that I have convinced a few handfuls of individuals to join a pension saving scheme.

    Most folk don’t realise that they are being offered a pretty good deal i.e. FREE MONEY as explained above. Once they appreciate the “free money” bit, they then have trouble with the “what investment” decision. Yet we know that for the majority a simple tracker would suffice and would be far superior to not bothering with a pension.

    In my opinion education and plain speaking are the most important things to be addressed. For example, I pointed out to a colleague that I was getting £300pcm more than him from our employer as he “didn’t really believe in pensions”. On top of that I was getting tax relief on my contribution too. He became much more receptive to joining the firm’s scheme than before. This may have been partly through jealousy but it worked.

    In general it all adds up to the general disinterest in investing/saving of any kind to be found in the UK public. Where are the informative and interesting programmes on TV, I cannot think of one? Lord knows we don’t need another cookery programme but that is more like than one on the “dirty” topic of money.

    Thank heavens for this blog, I would like to thank everyone involved in its production for their efforts. It has helped me personally in so many ways so many thanks again to both copy writers and commentators alike.

  • 25 Steve July 14, 2015, 1:14 pm

    I do agree trust is the key here. It needs a big carrot or a big stick to encourage people to play a high stakes, decades-long game with a 500lb gorilla who gets to change the rules any time he feels like it. I know I wouldn’t be making pension contributions if it wasn’t the only way to escape IMO unreasonably high marginal tax rates – I’d be saving for my future anyway, but not via a pension.

    I have no idea how that trust can be built, however.

  • 26 BeatTheSeasons July 14, 2015, 1:14 pm

    Since I started contributing to my pension the earliest withdrawal age has increased from 50 to 57 in a very short space of time. Surely the biggest disincentive for investing in pensions is that you can’t get your money back out again until you’re “old”? And, related to that, that people can’t imagine themselves being older than they are now. If you could always withdraw some of your pot, albeit with a tax penalty, I think people would be more willing to stash the money away, especially if they see ‘cashback’ added. Calling the vehicle something everyone can understand like your ‘nest egg’ instead of your ‘pension’ or some confusing acronym would also help. Or how about letting people name their own account as some forward thinking banks do?

  • 27 Mathmo July 14, 2015, 1:40 pm

    It does strike me that most pension contributions are money that people don’t really feels is their to hold in their hands. Employer contributions and tax rebates all feel a bit remote compared to opening your wallet and deciding to spend £50 on your future self instead of more lollies.

    Why is that?

    It’s trust. People don’t mind punting money that doesn’t really exist on some decade-long scheme they don’t really trust. Maybe it shows up when I retire, maybe it doesn’t. Who cares? It wasn’t my money anyway. It’s a bit of a bonus. But of course it’s very real money to the employer or the government.

    And who can blame them? The government has previously raided pension funds with the change to dividend taxation, and the City has grown fat and happy by overcharging for undergood management of the wealth.

    It’s not the complexity that is the issue, then, it’s that lack of trust that needs to change. The government needs to take a lead by tying its hands as much as it ties the contributions, and any promises it makes for free money need to be paid up front. Educate children how compound interest really works. Fill the newspapers and TV channels with Moustachians and heros of the FIRE movement and show people what saving really looks like.

  • 28 Gordon July 14, 2015, 1:45 pm

    Compulsory Personal Finance lessons for all school children as part of the National Curriculum

  • 29 vanguardfan July 14, 2015, 1:55 pm

    Personally I think ‘education’ about personal finance can only take you so far – some element of compulsion/sticks and carrots is also necessary – supported by the kind of very clear information messages at the point of action as described by TA.
    In particular, I suspect that trying to teach children about pensions may be fairly ineffective. I’m all for including practical maths and money management in the curriculum, but I think we need to be realistic about what it can achieve, and it also needs to be age-relevant – helping people overcome fear of numbers and develop good basic numeracy is probably a key goal. Teenagers also need to understand debt and tools for managing money – lets send people off to work or further study with the skills to live within their means, and hopefully they will be a bit better placed to work out mortgages and pensions and student loans at the right time.

  • 30 pejj July 14, 2015, 1:58 pm

    This is a smoke-screen consultation so that they can say they had one. No matter how or when or to what degree pension contributions are tax free, the dumb-ass chancellor lets silly people take it all out when they retire and blow it on ‘stuff’. Then 10 years later they join the queue at the food bank and complain that ‘the govment’ ought to care for the elderly. Whatever pension fund you accumulate should be kept as a pension fund until you are dead. I think all pension contributions should be subject to a lifetime record which demonstrates that you had a pension at retirement age, so that anyone who has made tax advantaged savings and then blown the lot can justifiably be told that they can not come back and sponge.

    I like the American idea where you save tax on the way in and pay it on the way out. You are allowed – nay, required, to take out a specified amount dependant on your life expectancy so that you can’t just hoard it to fund the estate tax fund, neither can you blow it all in one go because it throws you into a higher tax bracket. Most importantly, it encourages you to make sure that it lasts as long as you need it, but not much longer. Special cases could be made for life thratening diseases or special circumstances.

  • 31 Passive Investor July 14, 2015, 2:12 pm

    Quite a lot of my wish list is covered already. The principles I would like to see are

    – keep tax relief on the way in. As others have said who would trust future governments not to change the rules?

    – insist on low charges for participating providers

    – only offer tax relief on index funds

    – give a level playing field between public sector pensions and defined contribution schemes. One of the greatest iniquities with the current LTA is that the limit is effectively much higher for final salary public sector schemes than for private defined contrib schemes

    – possibly end final salary public sector schemes. They allow senior doctors and civil servants and others to bump up their salaries for a few years before retiring. The pension benefits that have been reaped this way (with minimal contributions) are sometimes eye-watering

  • 32 Jaygti July 14, 2015, 2:14 pm

    Compulsion is the only real answer.

    Ask a 25 year old if he would rather £30k in a pension that he can’t touch for 40 years , or £30k towards a house deposit, getting married, or BMW m3, etc, it’s pretty obvious what the vast majority would choose.

    If you take that choice away , the problem will be partially solved straight away.

  • 33 vanguardfan July 14, 2015, 2:21 pm

    @passiveinvestor – you are out of date regarding public sector schemes – since April this year they are no longer based on final salary but on career average earnings, which will be more progressive than the old final salary model.
    The settlement for the new public sector schemes was supposed to be good for 25 years. We’ll see. I do understand (and would not defend) the inequity in the LTA – but I think the LTA is counterproductive anyway and needs abolishing/reforming.
    Some of the new public sector schemes limit the amount of annual pension that can be accrued within the DB scheme – I think that would be a reasonable position, which would stop the abuses by the very highly paid that you describe.

  • 34 bobbyo July 14, 2015, 2:21 pm

    +1 for compulsory auto-enrollment with possibly a stepped increase from say 25-35, 35-45 etc. Also if we standardised the tax relief across basic and higher rate tax earners at say 30 or 35% the biggest incentives are there for the people who need most help, so it’s fairer…

  • 35 Thesquirreller July 14, 2015, 2:37 pm

    I will wager that this post will see one of the largest number of contributions with a huge array of differing opinions. This immediately flags what a can of worms this is for any government to try and rectify. Here’s my 2 pence worth

    1) Personal finance education in schools – we have to make people realise how money can work for them, show the benefits of saving early and for a long time but also make people realise that pensions aren’t either a place where you lose all your money or a magic box where £50 a month for 20 years on the way in will not equate to £1000+ a month on the way out for 20+years.

    2) Totally agree with the “addittional money earned” flagged on every pay slip along with “potential free money lost” for those not utilising fully.

    3) Flat rate of tax relief designed to benefit those on lower/middle incomes greater. Ie everyone gets 30% tax relief on what they save (assuming the numbers stack up for govt)

    4) with a flat rate of tax relief you can abolish the lifetime allowance caps which also add another level of complexity unnecessarily as currently they are in place to prevent (higher tax rate) individuals benefiting past a certain level.

  • 36 Fremantle July 14, 2015, 2:45 pm

    -1 for compulsory contributions

    Whilst everyone would benefit from long term saving, compulsory pension contributions fail on a number of fronts.

    For the poorly paid, compulsory pension contributions would have a disproportionately negative impact on their current living conditions and are unlikely to have a substantial impact on their future living conditions.

    For those with different short-to-medium term objectives such as saving for a property, compulsory pension contributions limit their ability to choose which goals to pursue.

    Compulsory contributions are likely to be funnelled into poor value for the employee/good value for the employer products. These products can have high fees and be subject to poor governance, such as in Australia.

    Nudge people, don’t chain them.

  • 37 Andy July 14, 2015, 2:48 pm

    1. It has to be tax free to pay in otherwise you kill pensions. I would cease contributions immediately if they were taxed on the way in.

    2. Lose the LTA. I’m nowhere near being affected by that now but am mid 30s and give interference/money grabbing suggests this limit will not move anywhere for a long time. Plus the govt could further ‘quantitative ease’ pushing up the values of sotcks further, dragging more people into the taxable bracket.

    3. Introduce an annual limit to pay in, at least 100k as no doubt this would be inflationed down.

    4. Make a pension fund liable to IHT

    5. No idea how this could work but prevent further govt interference. Based on past experience it’s not possible to trust the govt not to try and skin more pounds of flesh out of pensions. The comments on this forum strongly suggest people don’t trust the govt.

  • 38 John B July 14, 2015, 3:03 pm

    We have compulsory contributions already, as NI to fund the safety net state pension. While you want to encourage saving, a pension is not always the goal. 25 years ago as a new graduate my employer had a scheme where they would divert their pension contributions into a house deposit fund, and I was very grateful, as the financial pressures were much greater then. Now I have more spare income I can catch up on my pension. This would be an argument for lifetime allowances, except I can’t see a way of comparing a 1990 in a 20yo’s pocked pound to a 2015 one in a 45yo’s.

  • 39 Richard July 14, 2015, 3:49 pm

    There are only three sources of pension funding:
    – “The State”
    – Employers
    – Employees

    State spending needs to be seriously curtailed – I’d tackle the welfare culture before pensions, but that’s for another day…

    And the state is funded mainly from employers and employees so does
    not exist as an independent source of money.

    Employers should not be heavily tapped, but should contribute somewhat – as part of acceptable 21st Century first world “working conditions”.

    The real burden should fall on employees. Essentially save more today to fund your retirement tomorrow. It’s fiscally prudent and morally right.

    I can see most people doing this only through heavy incentivisation or compulsion. Incentivisation (e.g. tax breaks) costs “the state” money, so the main burden should be on compulsion. Not ideal, but I see no other way.

    Given that the “living wage” will be – IIRC – £9/hr in 2020, that’s about £18,000 a year for a full time worker, and with the high personal allowance nearly 2/3 of that is outside income tax. Surely some of that extra should be diverted towards a pension…is it really too much to ask that every worker puts aside 10% of their gross salary (with another 5% from the employer)?

    If it’s taken at source, it won’t be missed so much. I don’t like compulsion but I simply don’t see a large voluntary take-up at the 10% gross contribution level. We all have other things we could be spending our money on…

    Agree with the need to reform public sector pensions. It used to be they were poorly paid, but got good pensions. This was fair enough and is actually a good thing as they were living on less today, to fund a better tomorrow.

    However public sector wages seem to be on par with private sector ones (or better in some cases) and still have v good pensions. Not sustainable.

  • 40 Richardperson July 14, 2015, 4:26 pm

    The real question the treasury is asking is: how can the government get away with spending less pensions and pension tax relief?

    Which is a fair enough question.

    I’d say:

    – Scrap the tax relief on the way in.
    – Replace it with a 50p bonus for every £1 for by HMRC for every £1 invested by an individual; up to an annual limit of say £12,000 (£8,000 invested, £4,000 top up)
    – Keep a higher limit on total annual allowance, say £50,000.
    – No tax on the way out.

    This has the advantage of:
    – Being relatively simple to understand (ie it’s a bit like an ISA).
    -The 50p for every £1 invested sounds like a great deal, and it’s much simpler to understand than ‘you can reclaim tax on money invested’.
    – The annual limit would save the treasury money overall. (In other words, basic rate taxpayers would benefit greatly, higher taxpayers much less so. Additional taxpayers would be worse off than the current system… but do those people need the incentive as much?)

    TI makes the good point about not trusting future governments not to tax people on the way out. But people of pensionable age are the last people governments want to annoy, as they’re the section of society most likely to vote.

    But I think what people really want is a simple, trustworthy fund that they can understand and pay into. The current choices for auto-enrolment approved pensions seem poor to me. I was happy to spend a month learning about stocks and bonds and tracker funds etc. Most people would not be.

  • 41 Richard July 14, 2015, 5:12 pm

    If it was me in charge the choices for the auto-enrolment funds would be essentially zero charge and a small selection of tracker funds, such as the Vanguard Lifestrategy series.

    Indeed, as is often said on here, choice for the investor (=meddling) can often lead to poorer outcomes compared to the “do nothing” approach.

    So if I was very prespcriptive I’d put all workplace pensions in to LS100 if you’re in your 20s. Switch to LS80 in your 30s. LS60 in your 40s, etc.

    Of course these LS funds would have to be run by the Govt, not actually by Vanguard.

    I’ve rather got into this compulsion thing. I think I’d make quite a good dictator…

  • 42 mick July 14, 2015, 5:38 pm

    +1 for compulsion to encourage money to be paid in

    Get rid of the state pension – it’s a disincentive to save for yourself, if you ‘know’ the government will provide you a ‘decent’ standard of living in the future. If you have to claim welfare in your old age because you didn’t save enough, that might focus attention.. ( sure, this might just be renaming State pension to Welfare payment but it would take away the false certainty that the State will always provide enough for your old age)

    I’d like pension statements that combine pensions from different companies, and that don’t try to predict the future. They all have different retirement ages, assumed growth rates, asumed inflation rates. Just tell me I’ve got £x pounds in my pot now andI can figure out how many years it will take me to spend it.

  • 43 PC July 14, 2015, 5:43 pm


    I agree, a default of some very simple and very cheap LifeStrategy funds or a public equivalent would be a good start.

    Plus an upfront tax relief bribe, otherwise why would anyone lock their money away for years.

  • 44 Topman July 14, 2015, 5:47 pm


    The better education aspect would be essentially doomed from the start. The harsh but unavoidable truth is that the people most in need of such education, would by and large be those least intellectually able to comprehend the message and act upon it effectively.

    Before the PC brigade sets upon me, believe me that I am wholly sympathetic to the need to protect and aid the “weak” in society but it is as true now as it ever was that you can’t make a silk purse out of a sow’s ear. Although never a teacher, other than some part-time finance lecturing to help pay the bills many moons ago, I have extensive hands-on education experience as a governor at two different schools, and only the most “crazed” idealist would claim that all people are equally educable if given the right tuition.

  • 45 Steve July 14, 2015, 5:55 pm

    It isn’t remotely likely and I have no idea if it’s workable in practice, but in some ways my preferred solution to this would be a livable Citizen’s Allowance (combined with, say, a flat 30% tax on all other income). No one dies in the street through improvidence or ill-fortune and we’re all free of the rules and regulations on ISAs/SIPPs/dividends. You prefer to save for a house deposit before saving for retirement? Your choice. You fancy your chances investing in Bolivian penny stocks? Knock yourself out. Something of a libertarian fantasy in reality, I suspect, but couldn’t resist chucking the thought in.

  • 46 Finance Zombie July 14, 2015, 6:12 pm

    It’s all about trust. Do the government trust the public with more choice and access to their savings. Do the public trust the government not to change regulations that would not be in the publics favour on funds that are tied up for years.

    If there was no tax relief would anyone pay into a pension? Not a chance. We weigh up the benefit of the tax relief against the risk of not being allowed access to our savings or changing regulations. So the relief, as it currently is, has to be up front.

    You can see why it’s done though, incentivise people for long term savings but then make withdrawing from this very prohibitive. Should reduce stress on the state. But it just gets awfully complicated.

    My pennies;

    – Slowly reduce the current state pension, or get rid of it. People look to rely on it completely, with no real feel for how much they pay in vs how much they then draw.

    – Compulsory contributions to a gov’t pension scheme, DC style, with some very simple choices available. Index trackers. So it is cheap. I don’t know if this would be a fixed portion of income, a portion of income up to an absolute cap (i.e. so that this plus the state pension would provide a ‘minimum wage’ in retirement and people may contribute more if they wanted to) or some other limit. But done in such away that it doesn’t feel hugely prohibitive. Access to this would be restricted until some age, the governments deemed retirement age.

    – Outside of this do away with SIPPs/ISAs and just have one vehicle to encourage long term savings. Allow more flexible access to these savings, i.e. not heavily taxed like pensions are before age 57. Tax relief up front or on withdrawal? Up front is more encouraging, but maybe more complicated to administer.

    There are huge gaps….what happens when you are self-employed, what happens to those that don’t/can’t work, what happens if unemployment sky rockets, what happens if markets crash, etc etc….

    I say all this, whilst I would personally like freedom to just get on with it myself. The only reason I’m in the employers pension is for the “Free Cash” in the form of tax relief and their contributions….

  • 47 dearieme July 14, 2015, 6:30 pm

    Keep the TFLS because it has entered public consciousness as a good feature of pensions. Other withdrawals to be taxed as income, and to be available from State Pension Age less 10 years – partly because people are made unhappy by the bewildering changeability of pensions law. It would be best to keep some features unchanged.

    3 for the price of 2: permit maximum annual contribution of £10160 p.a. to be joined by taxpayer subsidy of £5080, so the the gross contribution = annual ISA allowance. (If this is too expensive, reduce both allowances until they are affordable again.) The £10160 can be split between employee and employer I suppose but does it matter? Wages are adjustable.

    An end to using salary sacrifice to avoid NICs.

    Existing defined benefit scheme members to become deferred members and join this new world instead. (I’m none too certain of this suggestion.)

    I don’t know how to stop the risk of people “double dipping” i.e. pissing all their pension money away and then living off doles. I can’t imagine a future in which politicians had the balls to put a stop to that and still find themselves electable. So, as usual, the perverse incentives of the welfare state are a real constraint on policy.

  • 48 John Kingham July 14, 2015, 7:08 pm

    +1 to what Steve said. I like the idea of a basic income for all and with that in place there’s no need for the state to worry about nudging people to save (assuming the basic income theory works in practice).

  • 49 Matt July 14, 2015, 8:33 pm

    Simplify by:
    – scrapping the LTA. It makes little sense given that pension inputs are capped at £40K or less anyway. The LTA is a significant disinsentive given the uncertainty of future growth. It also makes things very complicated for planning.
    – Scrap the carry forward rule. It doesn’t exist for ISAs.
    – Have a flat rate of tax relief, either at basic rate or marginally higher. (I speak as an additional higher rate payer)

    – do anything that reduces the flexibility / value of any current pension funds – that would make people lose faith in locking their money away long-term
    – remove the 25% tax free lump sum going forward.
    – remove the new withdrawal rules
    – do anything that means we’d end up with “old rule” vs “new rule” pots of money which are segregated and which will make things even harder to manage and plan

  • 50 david m July 14, 2015, 9:19 pm

    I think you need:

    1. Financial education about compound growth and about “free money” from employer and government contributions
    2. Auto enrolment but not total compulsion
    3. Employee contributions at a serious level (e.g. 8%)
    4. Employer contributions (e.g. 50% match, i.e. 4%)
    5. Tax relief or government contributions (e.g. 50% match, i.e. 4%)
    6. Limit the tax relief or government contribution, but remove the £1m limit on fund growth

    Currently 61% of my pension is from compound growth over many years, 12% from employer contributions, 11% from contract out contributions and basic rate tax relief, and only 16% from my employee contributions. I would hope to be able to draw 4% per annum from my pension when the time comes.

    I think if more people can see the that their contributions will be topped up and will enjoy compound growth then they will be motivated to contribute.

  • 51 Halfway July 14, 2015, 9:38 pm

    I don’t know. How do you plan for parliamentary sovereignty? I’m not being smart. The RDR changes cost me.

  • 52 Minikins July 14, 2015, 10:40 pm

    The system needs to be simplified.
    We need to ask questions like @Rob if we are to truly reform how we plan to support ourselves in our old age, however tax incentives may be the most effective way to encourage people to save.
    The constantly changing political and legal landscape around tax and pensions makes it very difficult for people to make firm decisions regarding their pensions which may have very different regulations and therefore implications in twenty or thirty years.
    There should be a general lifelong retirement account which you take with you throughout your working life containing different pots depending on where you work. And there should be choice in each company scheme which allows for either straight retirement savings with interest (cash or possible bonds) and retirement investments (stocks and shares). This would be rather like a glorified pension bank account with associated benefits and of course subject to regulations regarding withdrawal and tax but with enough flexibility so that
    1) the regulations do not have to be reformed every 10 or 20 years and
    2) people can constantly review where they are in their life stage and can withdraw accordingly BUT
    safeguards must be in place within the regulations by way of a compulsory buffer pot to ensure that older people are able to access some level of housing and care should they need it
    In addition one should be able to make personal extra contributions within the general lifetime retirement account either within the company pots, personal or compulsory pots.
    Finally, there could be a National Insurance reform that could encompass the buffer pot.

  • 53 SemiPassive July 14, 2015, 11:32 pm

    1. Don’t change anything. Keep SIPPs and ISAs basically the same as the are now, same tax relief, 25% tax free lump sums, 40k pa contribution limit pa, £1 million limit all fine with me. Don’t undo all the good work of recent budgets which have already greatly incentivised pensions.
    If people believe the age at which they can access their pension is subject to change, or tax free lump sum is removed then effectively a contract and trust has been breached, and it becomes impossible to plan for retirement.

    2. Improve Personal Finance education in schools and workplaces, and carry out the idiot proof free money payslip calculations outlined by TA in this article.

    3. Save the 50 billion by abolishing final salary public sector pensions in favour of defined contribution pensions, lead by example starting with MPs.

  • 54 gadgetmind July 15, 2015, 8:41 am

    How on earth can anyone trust the government on pensions? There don’t seem to be any “red lines” regards what they will/won’t change, so the changes come thick and fast, with at least one bout of meddling every year, sometimes two or three of them, with rules changing at zero notice.

    Trying to make long-term plans within an ever-changing regulatory framework is like trying to walk in a straight line during an earthquake!

    I’m only a couple of years off age 55 but don’t have a clue whether I’ll get a 25% tax free lump sum, or whether it will be capped, or whether I’ll still be free to drawdown the other 75% as quickly as I like. Any of this could change at any point and seriously mess up my plans.

  • 55 gadgetmind July 15, 2015, 8:46 am

    @SemiPassive – I’m afraid the £40kpa contribution cap was messed around with significantly in the last budget, and as part of this, Pension Input Periods became even more complex with us now having a “mini tax year” running from April 6th to budget day. Of course, no-one knew this was happening until a very complex document on the transitional arrangements dropped on our heads.

  • 56 SemiPassive July 15, 2015, 9:14 am

    I’m just over a decade off, 55 still the goal for me presently but I’m sure they will try and push this up. Any movement will be a huge disincentive, and combined with worse tax relief will cause me to cease SIPP contributions.
    I guess if they have to shaft 40% tax payers then a 33% flat rate of relief is the least worst option as it will simplify and incentivise lower rate tax payers. But I don’t agree this is “fairer”, that is simply a matter of opinion not fact. Its just a form of redistribution.

    If moving to a flat rate then I also wonder how they would limit company contribution tax relief (which avoid the explicit 40% tax reclaims of personal contributions) for ltd company owners, or salary sacrifice for regular employees. Its already fiendishly complicated and they could just make it worse.

  • 57 Fremantle July 15, 2015, 9:41 am


    Flat tax relief at would still apply at source for salary sacrifice, just more complicated than simply reducing your taxable income absolutely. Employees are likely to find extra lines on their payslip, showing tax paid on their gross salary, with their tax bill reduced by tax relief on any salary sacrifice pension contributions.

    For limited company directors, tax relief on company pensions is limited to 20% at the moment, corporation tax, which is set to reduce to 19% in 2017 and 18% in 2020. If flat relief is introduced at higher than the basic tax rate, this may make it more lucrative for directors to increase their salary and pay part of their pension contribution out of salary. Although this might have to be weighed against the loss of NIC tax relief for small businesses.

  • 58 Ryan July 15, 2015, 10:14 am

    My biggest concern is the age I’ll be able to access it – when I contribute to my pension, it’s like lending money to a friend; I hope for it back, but will ensure I have a Plan B. I’m in my late 20’s now – what are the odds of me being able to access it at 55? 60? I plan for early retirement, but if my money is not accessible, why would I save more?

    Perhaps these answers are already out there, but as far as I’m aware, the next government could come in and change the rules on SIPP’s to accessibility only after 70 (of course, highly unlikely, but there are no guarantees).

    If I invest my money somewhere today, the time period is essential for me to know.

  • 59 SemiPassive July 15, 2015, 10:50 am

    Fremantle, the total effective tax relief for ltd company owner/directors making company contributions is a lot higher than just corporation tax, it also saves them the income tax that they would of incurred if taking salary or dividends instead.
    So in total it can be broadly similar to the 40% tax relief that regular employees get.

  • 60 Jane July 15, 2015, 10:53 am

    I agree that the whole deal on pensions depends on tax relief on the way in and any suggestion of moving to TEE and possibly adding some kind of government top up at the end of the process will fail in the aim of increasing savings into pensions because people just won’t trust future governments not to change the rules.
    The idea of scrapping tax relief on the way in and replacing with an immediate government top up at 50p for every £ is quite interesting on the other hand, as I can see it is easier for people to understand than “tax relief”. It works for defined contribution schemes: for defined benefit schemes (final salary, career average etc) not so well. In practice that is what happens for a basic ate payer making contributions into a personal pension scheme anyway: the employee pays £100 into the scheme, and the scheme claims the £25 tax relief from the government so there is now £125 in the plan. Higher/additional rate tax payers reclaim the rest of the tax relief through their tax return. Paying 50p for every £1 would equate to giving everyone higher rate tax relief at 40% and so would be massively expensive. 40p per £1 would look like tax relief at about 28%- a real incentive for basic rate payers, and still valuable for higher/additional rate payers, but cheaper than the current system.
    Combine that with:
    – scrapping the LTA at least for DC pensions,
    – keeping the tax free cash but with a cap (currently it is capped at 25% of the LTA) ideally at something like £300k/£400k
    – retaining the annual allowance at something like £50k and perhaps phasing out carry forward (so current unused relief would still be available but for future years it would be use it or lose it)
    – keeping the minimum pension age at 55. I don’t understand the reason for linking it to state pension age, as I think that actively discourages people from tying up their money in pensions in case they end up out of work before they can take their pension
    – allowing people to access funds earlier than the minimum pension age but subject to a tax penalty aimed at getting the government stake back (similar to what can be done with an IRA in the US- where the penalty does not apply if you have a an approved reason for the withdrawal like medical bills or to buy a first house)

  • 61 Mumble July 15, 2015, 11:39 am

    A. It is tax deferral, not tax relief.

    B. Any move to TEE severely disadvantages anyone whose earnings are not even over decades, but instead lumpy. Athletes, armed forces, entrepreneurs. EET allows at least an element of offset against the ‘unfairness’ that taxes are levied based on the arbitrary time it takes the earth to orbit the sun.

    C. No, I do not trust that TEE will not morph into TET. Because of Gordon Brown’s raid on dividend tax credit current pensions are already EtT. Any new regime would at best be TtE. Yet with the tE element wide open to future political meddling in the precise same way as the Et of today’s EtT is already being dismantled (high earners who amass more that the LTA now face a TTT regime, for *retirement* savings no less!).

  • 62 The Investor July 15, 2015, 12:05 pm

    @all — Fabulous feedback and comments, if evidence of how hard it will be to achieve any consensus. Thank you!

    One pointer — I have to say that I don’t think the use of three letter acronyms is spectacularly helpful… Many people won’t have any idea what you’re talking about, which is a shame if you clearly have informed and perceptive views. I know it can be a faff typing out these things but much more accessible in terms of the conversation.

  • 63 Steve July 15, 2015, 12:08 pm

    @TI Will you be offering your opinion? (Or did I miss an earlier comment from you?)

  • 64 PC July 15, 2015, 12:49 pm

    @mumble – completely agree with A. and probably B. and C. if you could expand on those TLAs 😉

  • 65 Fly By Night July 15, 2015, 1:43 pm

    If it was up to me I would simplify the system:

    1) Have a “Pension Account” for everyone set up from birth – this would allow families to make contributions if they want to.
    2) Contributions made would be matched by the government to encourage saving. For every £1 you pay, we’ll give you £x..
    3) Capped matching contributions to limit people with lots of cash.
    4) Scrap the state pension – and instead NI contributions would be “paid in” to the pension account by the government so there was a direct link between NI and your own pension.
    5) All employers have to pay in a fixed percentage of salary.
    6) Allow people to pick investments, or have a default simple low cost balanced portfolio for people who can’t / don’t want to pick (which The Accumulator would be in charge of designing ;-).
    7) An annual statement showing what’s gone in, what you have, how much it would be worth at retirement age, and what would happen if you put more in.

  • 66 Mumble July 15, 2015, 1:54 pm

    “C. No, I do not trust that TEE will not morph into TET.”

    To clarify, taxed on contribution but not taxed later is easily reneged on by any backstabbing government. Accruals inside a pension are somewhat taxed by Gordon Brown’s theft of dividend tax reclaim, so an element of double tax already exists. And under the *current* regime as from next year high earners whose retirement savings exceed the (ridiculous, yet ever lowering) lifetime allowance now face double and close to triple taxation. Their contributions are taxed at 45%, the dividend distributions are taxed inside the plan at around 10%, and their withdrawals are again taxed at rates of up to 55%. An excellent illustration of untrustworthy government.

    No thanks. I’ll take my tax inducements *now* or just not bother. Giving something up now for a vague *government* promise that I’ll get something back at the other end is not an acceptable bargain.

  • 67 Dave July 15, 2015, 2:08 pm

    I like the idea of a basic income, but realistically that is not going to happen(too expensive) and neither is the state pension likely to abolished(not so good a plan at the ballet box). A move to tax being paid on exit seems inevitable as it will add c£40 billion to government finances per year and unwind over decades.

    Personally as it was only last year pension were reformed I would leave anything for another decade or so. The auto-enrollment seems to be working, savings are not quite high enough but you can adjust this over time. The new pension reforms make sense and ISA exist at a relatively generous level.

    To some extent it is pretty obvious why people see houses as great investments, there has been far less meddling in the taxation of them. Basically just an end to MIRAS and a shift from rates to council tax.

  • 68 david July 15, 2015, 2:26 pm

    “It should enable individuals to take personal responsibility for ensuring they have adequate savings for retirement.”

    this sounds great but in practice it’s often a disaster, AWOCS talked about this:

    “It still amazes me that one of the most important aspects of people’s lives — personal finance — is a subject that’s not taught in school.

    “I used to think that most people should be able to handle their financial situation on their own and teach themselves how to save, invest and deal with other important aspects of financial planning. My position on this has slowly changed over the years. I’m now convinced that the majority of people would be better off getting sound advice from a reasonably priced financial professional or advisor.”

    The roboadvisors being rolled out in USA sound promising, maybe that’s what Britain needs.

  • 69 Jane July 15, 2015, 2:29 pm

    @mumble I am not sure that in practice any high earners will actually be in the TTT position, since no one in their right mind would be making a pension contribution out of income taxed at 45%. It is probably fairer to say that they are treated still as EtT, the first E reflecting the tax exemption (or deferral) on their contributions up to the annual allowance, currently £40,000 but reducing to £10,000 for high earners from next year), the middle t reflecting the tax on dividend distributions in the accrual phase and that last T being the tax on withdrawal. But if I could play with fonts I would be inclined to make that T larger and in bold to make the point that the tax applied to them will be at a penal rate of 55%, designed to claw back some of the earlier relief.

  • 70 Mumble July 15, 2015, 3:45 pm


    Re your last sentence, the 55% over-lifetime allowance rate — 25% if taken as pension rather than “tax free” (hah!) lump sum — does claw back the original tax relief. So the Et-big-T-in-bold you posit with font-playing and TtT are equivalent.

    Also, note that defined benefits pension scheme members are often not keenly aware of either how much goes in to their pensions monthly, nor its present (actuarial, rather than real) value. So TtT is a trap for unsuspecting defined benefits pensions some years down the road. Even though it may lie in the future and is presently well camouflaged, it is entirely real.

    And then there are people who earn little or nothing in most years but large amounts in just a few years. Under a regime where pension contributions are taxed but withdrawals are (flimsily promised to be) tax free, they entirely lose the ability to smooth their incomes and unravel some of the unfairness of the *annual* tax accounting and collection framework.

  • 71 kean July 15, 2015, 5:13 pm

    I think more than any of the areas covered in the Summary of Questions, a level of understanding/expectation/ambition of an increasingly better life is the first step. The rest – ie. tax incentives; administrative ease; facilitating decision making; choosing investment vehicle; etc. – is of course all important but almost secondary.

    One thing always fascinates me – when people start work, almost everyone I have known in recent years has immediately started saving for deposit on a property OR they have started thinking and complaining about how hard it is to get on the ownership ladder. I was the same – saved & bought my car first & then had ambition to own my first flat and fought hard for it.

    This number one goal for the vast majority is innate in our psyche. With out any lessons people have an understanding of tangible & intangible benefits of owning a property and have an expectation that the asset will evolve to reap greater benefits in future (rightly or wrongly!).

    So why is catering for pension not understood in the same way? ONE potential explanation is that it is understood that property prices increase over time because there is data hitting you in the face at every corner whether it’s House Price Index stats or examples of people around who bought a house realised equity over time & moved up the social ladder. Properties are also seen as a symbol of success.

    If there was some way of readily showing pension wealth increase over time and therefore (almost!) certainty of a better future then that would incentivise people to take the first step up the pension ladder e.g. an employment scheme. It would address the “what’s in it for me?” issue where at present there is a level of detachment for whatever reasons (many listed by TA ring true!).

    Agree that tax incentives upfront is a MUST because promise of honey tomorrow doesn’t work. Trust in policy makers/politicians is a big issue + every one has some level of understanding of recent/current Financial Crisis and therefore a level of contempt for “bankers”. “Bird in hand worth 2 in the Woods” is the only game in town as far as I am concerned.

    Off the soapbox now 😉

  • 72 kean July 15, 2015, 5:39 pm

    Meant to say: some form of tax incentive on the way out almost as recognition of risk exposure while invested but also making sacrifice NOW will I think go a long way towards motivating people.

    I remember being alarmed every year when I started getting annual letters from my various pension schemes with alarming numbers outlining shortfalls in the pension schemes (still so!). That is when I started taking greater interest in having my own pension pot and a sense of control over my own destiny.

  • 73 Topman July 15, 2015, 6:34 pm

    @TI (post 62) – “I have to say that I don’t think the use of three letter acronyms is spectacularly helpful” … “Many people won’t have any idea what you are talking about ….. ”

    Yet still they are doing it!! It might as well be Swahili for all the sense it makes to me, and no doubt to many if not most other readers. It’s verging on the impolite, which isn’t at all what I’ve come to admire as the Monevator norm. Please stop it guys.

  • 74 Tyro July 15, 2015, 10:29 pm

    1. Don’t make any changes to current arrangements for a decade or so. With something like pensions nothing is more motivating than stability and predictability. Plus, auto-enrolment has only been up and running for 5 minutes and could very easily be derailed for a generation or so by undue fiddling now.
    2. In the medium to long-term, move to a basic income for every adult set at around £10,000-£12,000 in today’s money. (Then we could do away with a whole raft of tax reliefs, ISAs, pensions, etc etc. We’d need ideas/debate about how to tax income above the level of the basic income.
    3. Neither of these addresses the fundamental objective, which is how to provide a large boost to the tax take at a point in the electoral cycle where it can help the Chancellor’s ambitions. Does anyone have any ideas how to significantly pump up the public finances by, say, early 2019, ready for a give-away budget or two before we go to the polls again in May 2020?

  • 75 Sally-Ann July 16, 2015, 6:15 pm

    My top 5…
    1. Maintain the distinction between ISA’s and pensions – having a single vehicle is potentially more restrictive – I use both for different purposes and over different time horizons.
    2. Retain tax relief on contributions, but at the basic rate for all, which would achieve the most significant savings. Incentivising Basic Rate Tax payers to save is the priority in any case.
    3. Get rid of the LTA but restrict contributions to £50K per annum for all, regardless of earnings (to encourage low earners who receive a windfall to invest rather than spend, and also to overcome the problem of people who don’t know what their annual earnings will be).
    4. Get rid of stamp duty on share purchases within both pensions and ISA’s.
    5. Do all of this and then leave well alone (I can dream!)…

  • 76 Jed July 16, 2015, 9:11 pm

    The oxford definition of a pension is, a regular payment made during a persons retirement from an investment fund to which that person or their employer has contributed during their working life.
    Therefore abolish the 25% tax free lump sum.
    Max withdrawal rate 4% and tax free.
    Minimum age to take pension 60
    Lifetime allowance of 500k in pension linked to inflation.
    Contributions matched by government pound for pound.
    On death 50% paid to spouse and on their death remaining funds is put into a pot to fund the contribution matching by government.
    Compulsory enrollment into pension and automatically into default fund (balanced life strategy type fund) or can elect to invest into a limited suite of plain vanilla funds.
    Maximum annual charge for pension 0.3% to include all charges ters, platform charges etc.
    That should give most people a reasonable pension in their old age.

  • 77 JohnG July 17, 2015, 1:13 pm

    As a 30 year old it takes a huge amount of incentive to get me to contribute to my pension exactly because it is never left alone, so I’m constantly weighing up the incentives against the huge risks of negative changes.

    I currently contribute the amount required to get the maximum contribution from my employer because that combined with the tax relief is enough an incentive for me to risk the rug being pulled out from under me. I could comfortably afford to pay in more and get 40% tax relief on that, but I think the risks are so high that even nearly doubling my money isn’t enough to make me want to chance it.

    The issue is that we all know that the current pension rules aren’t sustainable. The triple lock literally can’t last forever, the projected retirement ages will be increased repeatedly in future etc. It isn’t viable to say ‘leave everything as it is’.

    What we need is to break pensioners down into generations. People who are currently, for example, 25-35 would get pension rules designed to self-fund (and maybe partially fund the historic pension blackhole) which would include the state-pension amount, expected retirement age, tax incentives. The same would be done for each generation based on the best information available at the time, and would give people more confidence in what they would get, making it easier to plan for.

    As long as the government can arbitrarily change when I can get at the money, how I can get at it, and even change the amount it’s an extremely unattractive option.

  • 78 kean July 17, 2015, 5:06 pm

    A line from a poem seems pertinent ……

    “Tread softly because you tread on my dreams.” WB Yeats 1899

    Dreams of JUST a comfortable life in retirement.

  • 79 Jeff July 17, 2015, 6:53 pm

    What I need to invest more in my pension is:
    1 Trust that the government will not change the rules to make my contributions worthless.
    2 The flexibility to move my money. e.g. If I move abroad, I want to be sure the government of the day will allow me to move my money.

    Typical ways in which the government might make my pension worth less:
    (i) Means test the basic pension
    (ii) Adjust the pensioners tax allowances so those who saved are hardly any better off than those who sponge of otthers
    (iii) Legislate so that pensions must be invested in “safe” gilts. [This one is most likely when government debt gets to the point when they struggle to borrow at a sensible rate]
    (iv) Lower the cap on maximum fund size. That cap is already too small for us mere mortals to buy a pension the same size as MPs get.

  • 80 Orlando July 17, 2015, 9:01 pm

    Saving for retirement only works if a small number of people do it. There is a terrible mistake being made if it is thought that everyone doing it will produce a stable financial environment. What will happen is that we will have the mother of all ‘savings gluts’, with consequent macroeconomic instability. As Izabella Kaminska of the FT has noted, money is, at the most basic, a call on the citizens of the future. The call the retirees will be making is on the efforts of the young, and they can either do it using the unpleasant arm twisting of asset deployment or trusting to the innate caring that a healthy society will naturally produce. The optimal solution for readers will be to recommend others don’t save while quietly saving on their own account.

  • 81 Sarah July 18, 2015, 2:31 pm

    Sadly many of the comments on this post reflect the problem – they are incomprehensible. And I pay attention to financial matters. To the hotel bar worker on minimum wage they might as well be Klingon.
    Keep It Simple Stupid – but this is the government and like many I am deeply suspicious that this is a money saving project only. You shouldn’t need an IQ of above 130 to understand your pension options. But you already do and I can’t see that changing. So if the aim is to get those earning less to save more, then tinkering isn’t going to cut it.
    Also lower earners are often suspicious of shares – my mother lost money buying shares may years ago and says she would never do it again.
    It took me a long time to get over my fear of it and the sensible option of trackers is drowned out by marketing of active funds by financial firms. And we can trust them can’t we? – NOT.
    Pensions are like healthy eating – we all know we should do it but real life interferes.

  • 82 Bob July 18, 2015, 3:15 pm

    One historic gripe of mine which I’d like to see corrected……

    I made a contribution to a personal pension over and above the company’s defined contribution scheme. I was a PAYE higher rate tax payer making less than £100k (the level at which HMRC requires you to complete a tax return). To claim back higher rate relief I have to ‘volunteer’ to complete a tax return???? Come on, there must be an easier way? Perhaps there is and i suffered that pain unnecessarily?

  • 83 Gally July 18, 2015, 11:44 pm

    We have ample methods of saving for a pension.

    Keep the concepts the same, taxed income on the way in. Tax Free income On The way out for ISA’s and the reverse for pensions.

    We have significant structural problems regarding education, finance industry profiteering, and Government indecision and our trust in politics.

    We need to sort structural problems created by the finance industry/government.

    When I was young mortgages were 3x salary enabling women to work or stay at home to look after children. When the credit limits were raised by lenders, to 6,8,10x salary we created problems in childcare, house ownership was a necessary requirement to live on low government and private pensions robbed by high fees.

    The Government and pension industry have to win back the trust of the many to invest in a pension that enables independence in retirement, without this there is no incentive other than to rely on the state.

  • 84 Lostpupp July 20, 2015, 2:11 pm

    I think I have quite a contrarian view, and may submit my own comment, so as to spare the accumulator the ordeal of trying to incorporate it, but would still love to share my views with this vibrant community.

    First some rough facts and figures to what will be a largely opinionated tirade:
    ISA: 15k
    State Penions: 8k
    Retirement Age 65-67
    Median UK Wage: 21k
    Average UK Wage: 29k
    Average UK Pension at retirement:40k
    13K RPI linked Annuity @65: ~400k pension pot required (July 17th hl best buy table)
    2013 80% income percentile(taxpayers only): 36.7k
    2013 90% income percentile(taxpayers only): 49.2k
    Avg UK housing equity at retirement?: Think it was ~170k
    UK >65 age: ~10M
    Cost of pensions(2013):
    Table PEN 6
    Tax relief on pensions: 35.1B
    Tax liable on pensions: 12.8B
    Net: 22.3B
    Memorandum Item (tax relief on NI): 14.7B

    I believe the government should be involved in creating and facilitating a safety net for it’s citizens. Not a really controversial statement. Where it gets contentious is how big a safety net? I believe (as a starting point) government should not be involved in helping those that are already well off. And while most will disagree, I like to define well off as having more than the average wage, or maybe even the median wage, though am willing to compromise on this.

    For pensions, I believe the government should concentrate on creating rules that incentivize people to make pension savings up to where they can get roughly ~21k per annum income. After that, I believe pensions transform to a middle/upper class government perk. Or in other words, after this, it is not helping those that the government should be helping. How to do this?
    1) 8k already covered by the state pension, linked to years worked (or years on benefit) generally, I am ok with this
    2) I also like the idea presented here of flat tax relief, which would greatly benefit those that put in a little, and still benefit those at the higher ends, but not as much as it currently does. There should be a % that can be calculated that would be revenue neutral based on 2013-2014 tax receipts. This would be a good place to start.
    3) I also like the idea presented here of a standard/simplified paycheck with simple words like ‘money saved in pension’ instead of ‘contributions’, Maybe a line called ‘free money given by government’ the differential between the basic/nil rate and this theorized flat rate
    4) I would further lower the LTA to 500k based on the premise that 400k + state pension allows the government to subsidize/facilitate an income of 21k with (arguably) the most costly product (annuities) at the most costly time (near-zero interest rates). What about those that don’t have NI contributions for full state pension– frankly do not see why taxpayers should be subsidizing those that didnt contribute by either living outside the UK and contributing to a foreign government their productive years (expats) or for immigrants, further subsidize the pension they have in other countries. And getting/giving more every year seems the fairest way of how you distinguish vs someone who lived and worked here 10 years vs 30 years regardless of legal immigration status.
    Further expanding on this, I see this LTA as 100k more generous than it need be, giving a lot of wiggle room (again based on the premise government should not subsidize lifestyles of the ‘well off’ with pensions. And more importantly its a floor with the least risky option. Want to use 4% withdrawal (20k per year) and reinvest difference and hope to beat the pathetic returns of annuities, go for it if you accept the risk.
    5) Adjust all figures to above to inflation ever 1 to 5 years.
    6) Finally, and most importantly, pass on savings to populace. The above is quite aggressive and punative to the >80% income percentile and I believe should save a good deal of money giving the huge amount of relief they would be losing out on. This hopefully should fund a decrease of income taxes (or depending on public mood, increase welfare).

    How to deal with government changing the rules, the above would deal with this by actually making it easier!
    Government thinks to many welfare scroungers at retirement, lower flat %
    Government thinks to few on welfare getting by at retirement, increase flat % or state pension
    Government thinks wealthy getting too much of a raw deal, increase ISA limit.
    Government thinks wealthy getting too many benefits… freeze ISA limit for a few years (please never decrease it!)
    Old people need bribing for next election: increase state pension
    Young people miraculously start voting and need bribing: increase flat%

    This would allow the political parties the tools they want so they can all make their mark while leacing the structure alone, and hopfully allow controlled changes which would allow people to make meaningful long term planning.

    *And breath… that felt good to let it all out.

    Or if the above is too radical (which even i admit it is) we could, change ‘pensions’, to ‘retired benfits’ and have them apply same cap as welfare cap. This would show the well off how much they too have been scrounging from the government on one end of the spectrum and maybe some ‘entitled’ people will actually start putting into pensions more to get their full share of government subsidy on the other end of the spectrum.
    This would effectively mean a 40% tax payer would have a ~50k per year limit putting money in. Some really ‘fun’/progressive things can be done with this also on the way out, like applying the cap to the 25% tax free lump sum + state pension.

  • 85 david m July 20, 2015, 7:32 pm


    I agree with restricting the tax relief provided (your point 2) but can’t agree with reducing the LTA (your point 4). The LTA is really a limit on fund growth and a tax on pension fund growth. If there is be an LTA it should be a Life Time Allowance on the tax relief provided.

    If an individual wants to contribute more of their own money and/or can grow their fund strongly then they shouldn’t have to pay an extra 25% tax on that.

  • 86 Lostpupp July 20, 2015, 9:21 pm

    @David m

    I like it your suggestion, seems more sensible and predictable.

    Plucking numbers out of the air… I would change 4) Give everyone a lifetime tax relief/topup of 100k for money going in, which would mean tax relief of up to 500k contribution for a basic rate tax payer, and 250k for a higher rate one.

    Given practically, a basic rate tax payer can only take 6.2k relief per year (31k*20%), this seems generous enough as a starting point, while being no more costly than the current system.

  • 87 david m July 20, 2015, 11:37 pm

    @ Lostpupp

    Thanks for your response and for plucking the numbers. I now agree with your new point 4.

  • 88 JohnG July 21, 2015, 9:23 am

    @Lostpupp What you’re suggesting is a major restructuring of how pensions work, and although you may think it removes the need for future tinkering I don’t see why politicians wouldn’t be tempted to amend it if and when they see it as beneficial.

    The issue with pensions isn’t ‘just’ the system, it’s the constantly changing nature of the system.

    If I had one issue with the system as you suggest it it would be that it makes contribution to pensions above the LTA threshold that you set a terrible decision. People would pay tax on the money when earned, have it locked up for decades, then pay tax on it when they withdraw it. It may be that your intention is to have a pensions as something people save up to that threshold then stop then fine (within reason, this solution still has issues around what happens if I reach the threshold but stock market performance means I have nothing like the average wage in retirement).

  • 89 Richard July 21, 2015, 11:12 am

    I see no reason to have an LTA. Far too complicated as to when it’s measured and what it means (payments in, tax relief, and investment growth all mixed up over many years, and subject to restrospective meddling).

    If the Govt wishes to restrict the amount of tax relief given to any saver then do this via an annual allowance (or similar). Possibly combined with a flat rate of tax relief (30% or 33% have been mooted).

    But I certainly want as much tax-relief “jam” today to minimise the possibility of the Govt changing the rules later on.

    While the 25% tax free lump sum is a huge boon (especially to basic rate taxpayers) I discount it when considering whether to pay into a pension because it’s a Govt promise, not a certainty. Upfront tax relief I can bank, so I count that in my calculations.

  • 90 taccumulator July 21, 2015, 3:09 pm

    Hi all, I’m bowled over by the quality and quantity of your comments. Hugely impressive and an enjoyable read. Thank you. I can’t wait to send them all over to the Treasury. And thankfully there’s no lifetime limit on these contributions.

    FWIW (I only did that to annoy TI), I’m a fan of scrapping the LTA (oops) and could accept a lifetime limit on overall relief if that’s the price.

    The flat-rate relief idea also seems like a great way of skewing the system in favour of those who need it the most.

    I like the withdrawal element (US style) as proposed by Jane and others as a way of combatting the fear of locking away cash while drowning in financial shtook at some point in the future.

    The abolition of the free pass on inheritance tax also makes sense, although obviously this wouldn’t apply to a spouse or long-term partner.

    I love the idea of a pension account from birth. There’s something compelling about this as a commitment from the British Government to look after its citizens. I can imagine people engaging with it far more than SIPPs etc because it’s seen as one of the benefits of being British and contributing to society.

    I’m against the abolition of the State Pension. Many in our society contribute a great deal despite their efforts going unrecognised by the convention of paid work e.g. stay-at-home parents, carers etc.

    Personal finance education is a must. No, it’s not the whole solution but it has to be better than the ‘you’re on your own’ approach my generation was left with.

    I disagree with compulsory schemes. Default auto-enrolment seems like a much more agreeable way of achieving much the same thing without taking away liberty.

    I’m not too worried about the prospect of delinquent pensioners spraying their savings against the wall like lottery winners and then sponging off the State. I think the proportion of people who’ve saved for years and then fancy a sub-7K p.a. income is going to be vanishingly small.
    Ideally your Pension Account will come with a nifty online tool that shows you how much you can spend to maintain a desired level of income over remaining life expectancy.

    Don’t understand why some think the ISA is easier to understand. I think the reality is that people don’t understand it because it looks like there isn’t anything to understand. I don’t think that’s the right basis on which to engage people with their old age. Apologies for the excessive use of the word understand in that last para.

    @ Ryan – thank you for the wonderful analogy of your pension savings as a loan you’re making to a friend.

    @ Tyro – thanks for the ‘pumping up finances before the next election’ chuckle. I hope you’re wrong.

    @ Richard – ditto for your good dictator comment. Though you’re probably right 😉

    @ Beat the Seasons – I call my pension savings the FU Fund. Definitely helps.

  • 91 kean July 21, 2015, 5:28 pm

    TA, thanks you for initiating this dialogue: there are some really great ideas and arguments presented in this thread.

    One point I completely disagree with is concerning inheritance tax but at the back of my mind think may be I haven’t fully grasped the idea/policy & if that’s the case, I apologise in advance.

    Some of us don’t worry quite so much about spouse &/or off springs nearly to the same extent as about a genuinely disabled dependents. In relative terms, harsh as it may seem, I tend to think able bodied will find a way to get by whereas a person with certain type of disabilities has no chance – e.g my dependent has severe learning disability in the main but also physical disabilities.

    Residual pension should get a free pass to a known dependent (e.g. known to IRS or Local Authorities). If I understood it right the recent changes to IHT concerning a residential property & upping the threshold to £500k is confined to off-springs. Do not understand why given that both the chancellor & Local Authorities have been chipping away at Social Welfare for years now.

  • 92 taccumulator July 21, 2015, 5:53 pm

    @ Kean – you’re absolutely right. I should have written dependent / spouse / long-term partner.

  • 93 John B July 21, 2015, 8:24 pm

    @kean If inheritance tax were applied to all pensions the state should have the extra income to help the disabled much more than a single estate could. If the purpose of inheritance tax is wealth redistribution to provide social justice, then pensions should be included to boost that ability.

  • 94 kean July 23, 2015, 8:01 am

    @TA – thanks 😉

    @John B – that is a lovely idea & if I had any faith in the “system” then I would back it a 100%. But as I said the policy makers have been chipping away relentlessly – I have been leading local campaigns each time they have made any significant change since 1999.

    Our last campaign – my 4th one – just ended a few weeks ago and we lost the battle (again!).

    Politicians are fickle (change direction with the wind) and to policy makers its a numbers game; they don’t seem to have twigged that there are real human beings behind the numbers. 80-90% of genuinely disabled suffer so that the policymakers/politicians can deal with the 5% who really know how to work the system and abuse it.

    On top of that I see the national & local government squander money like it is going out of fashion. This opinion is based on information they have provided to me via “Freedom of Info” act.

  • 95 IvanOpinion July 24, 2015, 5:07 pm

    One further point that has not yet been made is that making pension withdrawals exempt from tax is only going to be of any benefit to the relatively well off. The single persons allowance is £11,000, so a married couple in retirement can earn up to £22,000 without paying any tax, and including the new £5000 dividend tax allowance this could be £32,000, as long £10000 of that income is received as dividends. On top of that, many retirees will have money in ISAs, so they can draw income from this tax free as well.

    For this reason, I would give very little weight to the benefit of a promise that my pension income will not be taxed, even if I set aside the doubt about whether that promise will be kept. If the government is genuinely concerned about incentivising people to contribute to their pensions, then they need to retain tax relief upfront.

  • 96 PlaywithFire August 4, 2015, 4:23 pm

    Stop increasing the age at which you can take a personal pension, this stops people saving because they might get hit by a bus/ had a great aunt who died young.

    If the issue with pension tax relief is that high earners are getting too much and lower earners not enough, then limit tax relief to 15% of pay, or a pound value equal to 50% of the median pay and increase the tax relief to 50%.

    Identify the life events that people are concerned about funding (children, serious illness, house sets on fire, whatever) and allow a loan from the pension fund for these events. Similar to a 41k loan in the US, but not for optional expenses like a new car or a wedding.

    And don’t reduce the lifetime allowance again. It’s not the limit, but the uncertainty that it could be reduced to nothing at any time that prevents me investing more in pensions.

    Require pension providers to have low-fee options.

  • 97 Dean D August 10, 2015, 11:25 pm

    As a 40% tax payer who firmly believes that the current scheme is not “tax relief” but rather “tax deferral”, I can understand that the current scheme is too expensive and the distribution of cost is going to those who need it least rather than those who will be most dependent upon the state at retirement age. According I can support the need for change but I would like add the following ideas, comment & opinion;

    1) There is opportunity for reform here to leave worse off many of those persons (basic rate tax payers) that the treasury is appealing to save more.

    A basic rate tax payer today in a work salary sacrifice scheme is able to enjoy effective 30% “tax relief” due to the 10% National Insurance (NI) that would not be paid in addition to the basic rate relief. Apart from the mooted 33% flat rate for all, (which almost all agree would cost more) I have not see any other proposals that would make a new scheme encourage this band of people to save more than they do today – not when they realise they are actually worse off than the current scheme!

    2) I think the government should investigate the impact that reforming the 100k “Gordon Brown” stealth tax (where between 100k and 120k, the effective tax rate is 60%) would have on the growing cost of pension tax relief.

    It stands to reason that anyone earning 100-120k would squirrel as much money into his/her pension because the effective relief is not 20,40 or 45% it is 60%! Even beyond this level to say 130k there is still a big incentive to make pension contributions to avoid the impact of this stealth tax band. If the government were to reform this stealth tax to something more progressive, my bet is those fortunate enough to be on such salary would not put nearly as much into their pension (and hence cost the government less in lost taxation)

    As an idea, they could consider to extend downwards the 45% tax band to 100k (or even increasing it to a 47 or 48% level). This would mean those in this 100-130k range would be far less inclined to load their pensions AND combined with an increase to 47 or 48%, the government might well be much better off with a double whammy; less tax relief burden and increased tax from those above the 150k mark where the changes would break even.

    3) The Lifetime Allowance (LTA) is a disincentive to save and should certainly be abolished. Why penalise those who make the right investment decisions for their retirement? Especially those that start saving at the earliest age where the government is looking to encourage.

    No such “penalty” exists in Stocks and Shares ISA’! Indeed if the barrier is removed, those with a bigger pot will pay more tax at retirement and that would nett more to the treasury than an ISA alternative where no such taxation would exist (assuming Pension ISA is treated like Stocks and Shares ISA).

    If the treasury need to control pension relief, the annual allowance is a much fairer and progressive measure. Lower the annual allowance – it surely must save treasury more whilst ensuring those highest earners are able to “milk” the system.

    3) Education is key. If the basic rate tax payers were all automatically converted to salary sacrifice and then clearly informed & updated that they are getting 30% effective relief this is as good as any method to encourage saving whilst not causing a major impact to the pension industry where change will cost millions and we all know who will end up paying for that! All of us.

    So in summary, I think a combination making salary sacrifice standard for all basic rate tax payer combined with an education campaign, reforming the 100k stealth tax band, scrapping the LTA and lowering the annual allowance would be a cost effective solution that would not need to send shock waves through the industry.

  • 98 The Accumulator August 16, 2015, 5:08 pm

    Hi all, just to let you know I’ve fired off our collective thoughts to HM Treasury today. Thank you all for your comments. Taken together I think this represents a powerful cross-section of opinion from a truly engaged community. I very much hope that our views are taken into account.

  • 99 The Accumulator August 16, 2015, 5:09 pm

    Here’s the auto-reply from the Government:

    Thank you for your response to the consultation ‘Strengthening the incentive to save: a consultation on pensions tax relief’ which the government has now received.

    Due to the high number of responses we are receiving, in most cases we are unable to respond to each request individually. Your response will therefore be considered alongside other responses and the government will publish a summary following the closure of the consultation.

  • 100 Lee Bedford September 11, 2015, 10:38 am

    The element of trust in the government not to change the rules later is a key point made by other, but there are a few issues why i think this is a bad idea.

    1. The fairness in current taxation levels in this tax on the way in system. Our government have driven down the 40% rate threshold and have only commit ed to restore it back to 2010+inflation levels by 2020. This is minor however when compared to the issue of removal of personal allowance that creates a marginal tax rate of 60% (Between £100K and £100k+(2x personal allowance). It has been compounded by the increase in individual personal allowance and fiscally dragged since 2010. This is the primary reason i increased my pension contributions as i think 60% taxation rates are prohibitive and my values will not let me see this as fair taxation policy. Any move to ISA pensions must address this anomaly.

    2. Basic compound interest growth – Putting less in up front creates less opportunity for compound growth and pensions pots will be smaller by default. This is going to put more pressure on a future pension credit system to maintain a basic standard of living.

    3. Encouraging pension saving at all. A person can invest in a ISA now to the £15K+ limit and have easy access to his/her cash. I am willing to be a small wager that average pension contributions would not break this limit, so all it will achieve is people increasing contributions into the standard ISA market and all the temptations to spend it early!

    Flat tax relief

    I really struggle this with this one as i really think of pensions as tax deferral, you are not relieved of tax at all apart from the 25% tax free amount when taking it. Anyway if we must persist to term it relief then moving away from relief at your marginal rate to a flat system has all sorts of issues.

    1. It creates a mechanism for redistribution of income between lower and higher tax rate payers in the pension system. Is this really the place to do this?
    2. As per discussion above in ISA section, marginal rates are not always 20%,40%,45% nor are they progressive. So someone contributing to a pension with income between £100-120K would be nearly halving their tax relief, yet someone contributing with much higher sums would only be losing circa 15% of relief!
    3. Talking about pension simplicity, messing about with tax relief levels would make the system more complicated and unfair as at least now you are deferring your own money (the government tries to convince us it tops up your pension, but it doesn’t it allows you to defer the taxation.

    Today’s System

    The government talk about today’s pension system as though its broken, it isn’t. The only thing that is broken is that we have a huge deficit / national debt and they want to grab some cash now. Today’s system offers a workable system for people to save for their retirement and a chance to get something back from an otherwise complex and unfair income tax system. The success of auto enrollment should not be underestimated. My recommendation would be to keep the current system but look at the following measures;

    1. Address the unfairness between DB and DC schemes, close all DB schemes to future accrual now and implement DC schemes across the board.
    2. Remove the LTA, the AA protects abuse of annual contributions and the LTA penalizes a good investment strategy. An alternative would be to value the LTA on contributions only and ignore investment growth.
    3. Remove the absurd AA tapering after £150K. Again this is merely a tax grab to pay for relief in the unearned income area of IHT.
    4. Remove the personal allowance ceiling, although not directly related to pensions the government may actually see some tax increases short term as people will not be directed to put all this income into pensions.
    5. Look at 25% tax free amount. This is the place to create a bit more fairness with tax relief decreasing on a sliding scale according to the size of your pot. This would further incentivise lower income individuals into pensions.
    6. Teach the value of pensions in schools and offer wider access to IFA’s with gov subsidies for doing so.

    Hope my comments are taking to consideration!

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