Given the speculation that had circled in the pensions press over the recent weeks, I decided to tune in to the Autumn Budget this afternoon. I sat there waiting for a 2014 “Pensions Freedoms” moment. Pensions tax relief is worth over £38bn a year. The majority of commentators agree that the pensions system in the UK is due for reform as it is not incentivising sufficient saving. The Treasury Select Committee had commented that the issue of tax relief should be examined again. The scene was set. BBC iPlayer, one diet coke, packet of digestives (yes – my dentist loves me). Bring it on……..
It got to the point where Philip Hammond said “I commend this Budget to the House”. And I thought to myself – “something monumental MUST have happened – I just missed it”. So I then went searching through the various announcements from the DWP.
Yes, there was some information relevant to the pensions press buried in the wider documentation. £5m for the Pensions Dashboard. Hardly material in the context of the numbers the Chancellor was throwing about. HMRC becoming a secured creditor in insolvencies. Not exactly fabulous news for what is often the largest unsecured creditor – the pension scheme.
But the best the pensions press could come up with on pensions tax relief relates to the fact that tax bands are changing. Not exactly earth-shattering news.
Which brings me to support the conclusion that I have held for some time. With the exception of the aforementioned Pensions Freedoms (which a cynic might say was a short-term tax grab dressed up as a move to make pensions saving more attractive – Lamborghini anyone?) successive governments seem unwilling to do anything fundamental to change the UK pensions system.
Since I started in pensions in 1993 two things have more or less been a given.
- People are living longer. Yes, the pace of improvement in mortality is decreasing, but people still live longer. Lifespans in retirement are some 40% longer as a result.
- Interest rates have decreased. Yes the bank base rate has clicked up in the last year, but in 1993 it stood at 5.875%. Today it is 0.75%. Compound interest is such that, to provide £100 of pension in 40 years time would have cost £10.19 in 1993. Today it costs £74.16.
Put these two facts together and providing a decent level of income in retirement has become much more expensive. The current levels of pensions savings in the UK will lead to the majority of future pensioners barely getting above the poverty line.
I was hoping for a change today. A start to the process of at least considering again whether what we are putting by is going to be enough. And if it isn’t, maybe we could move on to altering the tax relief system to encourage those on lower incomes to save more.
But mandating increased pensions saving isn’t a vote winner. We have reached a place where the politicians (and I count them as all the same here – I don’t personally think one party holds a set of answers which are more appealing than another’s) care more about potholes and public lavatories than whether the 5% mandated auto enrolment contribution is going to be enough for pensioners not to have to choose between heating and eating. And to put it mildly, that’s a worry.