A long time ago, more time than he cares to remember, Pensions News (PN) was a university student. Whilst there, PN studied English Literature and History so; to be clear, he didn’t study pensions. PN particularly remembers a lecture given by the university’s professor of Old English Literature. The Professor was lecturing about use of language and referred to a lecture he, the lecturer, had sat in years before. That particular lecture had been given by the late Mr Bernard Levin. Mr Levin’s lecture warned attendees (including PN’s future professor of Old English literature) of the misuse of words and how they should not confuse misuse of words with the evolution of language.
A few days ago, PN was listening to commentary of a football match on the radio. During the match, the commentator referred to the apparent lethargy of some of the players and the referee. The commentator asked the expert, a former football player, if he would corroborate his opinion. “I agree” said the expert, “perhaps it’s something they put in the half time tea. [Player A] looks totally disinterested. Even the referee looks totally disinterested! What’s up with them?! There’s no energy!”.
Had Mr Levin been alive, he would, PN thinks, have banged his forehead repeatedly against his desk or the wall. So too would PN’s Professor of Old English lecturer just as PN did as he listened. PN has no doubt that you, the reader, need not look at a dictionary to understand that “disinterested” is how a referee (any referee) is supposed to be. The players almost certainly (and by definition) were not disinterested. Having got that point off his chest, PN will complete his introduction with an observation for you; the reader. You may be completely uninterested in the rest of this article (and the part above and including this line for all PN knows) but you are very unlikely to be disinterested .
As previous editions of PN have noted, there is no getting away from news about pensions at present. First there was news of the BHS Pension Scheme and how Sir Philip Green (former owner of BHS) was being asked for money (up to £200m in fact) to shore it up. Sir Philip offered £80m. Then (on Thursday 10 March in fact) it was announced that the members of that scheme may need to accept a cut equivalent to 10% in the value of benefits paid under said scheme.
Amidst this news, the Financial Times of Saturday / Sunday 5 / 6 March featured news about pensions on its front page, some of its middle pages and more than one page of its “money” section. The reason for this was that late on Friday 4 March, the Chancellor, Mr George Osborne, announced that he had decided not to overhaul the rules on pension tax relief. Right up until that point, there had been strong rumours that Mr Osborne, having limited the amount of money one could put in to a pension plan without paying tax at a punitive rate, had decided to place restrictions on the rate at which tax relief could be claimed on the contributions which could legitimately be put in to a pension plan. The news was generally greeted by the FT, The Times, the Independent on Sunday, the Guardian and the Daily Telegraph; given their political views, that looks like a rare consensus. Part of the criticism of the purported change was that it would be complex in the extreme to administer (unless the Chancellor decided to apply tax relief at a flat rate which was also the basic rate (only)) and another part of the criticism from many commentators was that the change would “discourage saving”.
Once the newspapers had (largely) welcomed the news of this so-called (so-called by the media) U-turn, the so-called pensions industry welcomed the same news. Having done this, the so-called industry then started to worry about what the Chancellor would change now that he had decided not to change the rules on tax relief on pension contributions. Conspiracy theories abounded. HMRC has “done deals” with large corporates on tax and HM Treasury continues to need revenues. Targets do not come much softer (in relative terms) than pension funds. Ergo; the Chancellor is likely to continue to try to take monies from them.
For some time, PN has expressed his concern that now everyone (there are few exceptions to this rule) has to be automatically enrolled in to a pension scheme of some sort and then contribute to it, logically, one of the next steps is for HM Government to remove or at least dilute the existing incentives to contribute to a pension scheme. Put differently, why encourage someone to do something which they are already obliged to do? The most valuable incentives and benefits to contributing to a pension include (a) the tax relief one is entitled to on the contributions one makes and (b) the right to receive up to 25% of the value of one’s pension fund on retirement, tax free.
More than one of the newspapers referred to above thinks it possible that the Chancellor’s next move will be to remove individuals’ rights to take up to 25% of the value of one’s fund as cash. In PN’s view, this would be politically courageous and PN thinks it is usual that courageous politicians are either on their way out or know they are about to be ushered towards the exit. Mr Osborne does not seem to PN to fall in to either category. Other commentators (including contributors to the FT’s un-put-down-able magazine “Pensions Expert”) feel that Mr Osborne has only postponed the changes to the rules on tax relief. This is possible. It also remains a possibility that Mr Osborne changes his mind again and announces a major pension reform of some sort on budget day. On this point, Mr Osborne has form.
So where does this leave you, the reader? If your (gross) annual salary is under £100,000 and you (and your employer) contribute less than £30,000 (per annum) in to a pension plan (or series of plans), the chances are that, in pension terms, there will be no change for you. If you earn in excess of £100,000 and you (and your employer) put more than £10,000 (per annum) in to a pension plan (or series of plans), PN has reported in previous editions that you need to take some independent advice . If you, the reader, are a member of a pension scheme providing salary-related benefits (e.g. a public service pension scheme such as the Teachers’ Pension Scheme or the NHS Pension Scheme), there are complex calculations which will tell you how much (in money’s worth) is being paid in to those schemes on your behalf. PN has reported in previous editions that he, PN, is not authorised (for all the right reasons) to give financial advice. Neither does PN do the sort of complex calculation that a member of (for instance) the NHS Pension Scheme need. Perhaps the scheme administrator does and perhaps that person or body of persons could provide the sort of information that a financial adviser could use to give advice.
Finally, if you, the reader, don’t contribute to a pension plan at all, now might be the time to ask yourself why that is. For as long as there are incentives to contribute to a pension, it seems to make sense that we take advantage of them. This probably takes PN back to where he came in; you could well be uninterested in all this. It is unlikely however that you are disinterested.
Until next time......