What a start to the year!
The Chancellor's decision to defer any major changes to pension tax relief is a sensible one with automatic enrolment at its peak and the pension freedoms still bedding in. It allows Independent Financial Advisers to focus on helping our clients make the most of the new flexibility, without the distraction of further major change. So, what has been happening?
In entertainment, a farce is a comedy that aims at entertaining the audience through situations that are highly exaggerated and therefore extremely improbable. Farces are often highly incomprehensible plot-wise (due to the many plot twists and random events that occur), but viewers are encouraged not to try to follow the plot in order to avoid becoming confused and overwhelmed. Farce is also characterized by physical humour, the use of deliberate absurdity or nonsense. Furthermore, a farce is also often set in one particular location, where all events occur.
So, I guess using that definition, we could call the last few weeks of pension ‘leaks’ a complete farce. I can only imagine the Department of Work and Pensions (DWP) looking like a scene out of “Yes, Minister” or “The Thick of It” recently, with civil servants being told to leak and then un-leak information by the hour, and then to do it all over again.
The trouble is, it just isn’t funny. What we need as a nation is some clear, long-term and joined up thinking on pensions and for the public to be given some time to digest, understand and then grow some confidence in our pensions system. What we get is constant tinkering, uncertainty and reduced benefit. In 2006 Gordon Brown brought in “Pensions Simplification” as a sweeping new set of rules to “once and for all simplify the pension system and restore fairness and confidence and to reduce the complicated patchwork of legislation” we had at that time. This, we were told would encourage the public to save more into pensions, as we would all understand it. It was about as successful as his pledge to bring ‘Boom and Bust” to an end, just months before the largest crash in living memory and a subsequent run on UK banks!
Since then, we have had one, two or even three major pension changes every single year and the public has been totally failed by the politicians, across all parties. 2016 has been evidence of this. In an attempt to continue his Robin Hood impersonation, the Chancellor sought to press changes further by taking from the rich (anyone who saves, or even tries to save) and give to the poor (The Treasury). As with every modern policy announcement, he got this information leaked well in advance of the budget, to soften the blow. What he didn’t see coming was the Brexit polls being so close though, and the likely outcome of upsetting all the higher rate tax payers at the polls in the summer. So he U-turned, even before he turned!
So hopefully, we will have peace and quiet (for now) on pensions at the next budget, but be warned, this is only the lull before the storm. Once other political matters have quietened, this constant attack on pension planning will return with vengeance. The fact that the government has concocted such a mess though has some positives. Not least, it has reinforced how important it is to make the most of the current pension tax system whilst it remains and speak to your Independent Financial Adviser soon, although he (or she) may be looking a little bit weary if they have been following events closely for the last month!