When he was younger than he is now (quite a lot younger in fact), Pensions News (PN) set out a theory based on research into the UK’s newspapers.  The relatively youthful version of PN set out a theory which acknowledged a much shorter, pithier theory which was articulated by the three main characters in the hit BBC series “Yes Minister” and “Yes Prime Minister” (*).  You, the reader, probably need to appreciate two things at this point.  They are firstly, “Yes Minister” and “Yes Prime Minister” were series broadcast (by the BBC) in the 1980s and were invariably watched by members of Parliament.  The subject matter of the programmes was a satirical view of the relationship between Britain’s politicians and the country’s civil service.  A number of episodes felt disturbingly close to events from that time and, equally disturbingly, many seem to have lost none of their relevance now.  Secondly, at the time PN developed his theory, a lot of people read newspapers - there was no electronic version of what we now call the “internet”.  Rather; individuals tended to obtain their views from books, periodicals, magazines and newspapers and, instead of spending time glued to the glaring screens of mobile telephones (often whilst walking across busy streets) and sending each other photographic evidence of what they were about to eat and drink, people communicated by talking and (sometimes) writing to each other.  Put differently, PN’s theory was established at a time when a “real time conversation” meant standing or sitting with the person(s) one was having the conversation with in circumstances where none of the conversationalists broke off to stare at a small telephone screen whilst muttering “carry on, I am listening”.

PN’s theory was that generally speaking, the majority of the country’s population had no wish to be given detailed information about anything (other than certain sports events) and that if they were given detailed information, they would largely ignore or reject it.  In this way, PN acknowledged another statement made by the head of the civil service during an episode on “Yes Prime Minister”.  The leading civil servant (named Sir Humphrey Appleby and played by the late Nigel Hawthorn) explained to the Prime Minister (Mr James Hacker MP, played by the late Paul Eddington) that, in a crisis generally but particularly one which involved foreign countries, the public was uninterested in detail.  At the end of the explanation, Sir Humphrey stated (allowing some exasperation to enter his tone) that in a case such as the Prime Minister and he were considering, all the public wanted to know was “who are the goodies and who are the baddies”.  As if to prove the point, PN referred (in his thesis) to the circulation figures for certain newspapers which explained or tried to explain certain stories based outside the UK (PN’s study used as its subject matter certain military conflicts involving this country).  Those newspapers basing their explanations on detailed factual information sold relatively few copies.  Newspapers which covered the same story using large pictures and short headlines (on the other hand) sold millions.  For a time, one newspaper (called “Today”) outsold many of its rivals by using coloured photos to supplement its short headlines.

Before applying this theory to pensions, PN was unable to resist applying its underlying principle to some of the interpretations applied to the results of the (now fairly) recent results of this country’s local elections.  In particular, PN queried the interpretations applied to those results by (for now anyway) this country’s two main political parties.  Both parties, having been given as clear an indication as it is possible for an electorate to give that neither was doing a good job, appeared to interpret the results of the local elections as a message to “get on with it” (PN will use up no more space in explaining what the “it” in that sentence might be). Writing in The Observer the following Sunday (5 May in case you are interested), Mr Andrew Rawnsley expressed some frustration whilst expressing the same opinion.

PN now turns to his own discipline; having found (yet) more evidence that the theory described above has an application that is wider than politics.  PN is not about to argue that the subject of pensions is interesting or / and easy to understand. There are aspects of pension law and pension practice that are anything but straightforward.  That said, the basic principle about a pension is not so difficult to understand so it is odd (to PN) that so many of his contemporaries demonstrate that they don’t or don’t want to follow that principle.  Essentially, one contributes into a tax efficient account as part of one’s retirement planning.  The money in that account is invested and, generally, the more one contributes into the account (PN is convinced that no pension “pots” are involved in the process), the more one is likely to receive at retirement.  If one wants to be guaranteed a particular level of pension, higher contributions are almost always required and the level of those contributions is almost never going to be the same over a sustained period of years or (even) months.  Such is the basic difference between defined contribution pensions (where contributions are generally the same but the benefit is unpredictable) and defined benefit pensions (where the benefit is known but the level of contribution is unknown and can fluctuate widely).  Evidence presented by this country’s regulators suggests that the last part of this paragraph is grasped by few and ignored by many.

PN knows and has largely accepted, with what he feels to be a commendable amount of stoicism, the fact that his readers (both of them) are largely uninterested in facts and figures on pensions (but not only pensions – see above) and, if given such facts and figures, they will largely ignore them.  Even so, PN feels bound to join a growing movement to rail against something he has written about before; the annual allowance. He does this because, one never knows, both readers might still be reading.

In previous editions of PN, PN has referred the annual allowance (i.e. the amount one can contribute to a pension scheme on a tax-favourable basis during a financial year) and has connected misunderstanding of the complexities of the allowance with the law of unintended consequences.  In particular, PN has worried about the fact that the consequences of exceeding the annual allowance has caused senior doctors not to take on additional shifts in overworked hospitals and/ or to retire early.  The reason doctors have decided to take what seem to be extreme measures at a time when parts of this country’s health service appear particularly badly stretched is this; they are concerned that taking the additional shift will mean that the value of contributions made to their pension scheme will go over the annual allowance.  Overshooting the annual allowance causes punitive, pension-related tax charges to apply and this, understandably, worries doctors.  In one particular case, the Financial Times (FT) and Guardian newspapers reported that a surgeon who, having worked one or more additional shifts, found that the cost of doing so caused him to receive a tax bill for £87,000 (i.e. for exceeding the annual allowance).  One of the problems with the annual allowance is its extreme complexity because, where the individual earns over a certain amount (£110,000 per annum) the £40,000 annual allowance is tapered down so that for higher earners, the allowance becomes £10,000.  Although PN wrote about this a few weeks ago, other writers and at least one insurance company have since concluded that the annual allowance causes so much difficulty that it should not be reformed, it should be abolished outright.  PN is writing today largely to agree with this view because, in his view, it is causing damage to large sections of society.  

Having set out his conclusion, PN should add that he has two views on the annual allowance.  The first is that for a large number of us, the annual allowance is an irrelevance.  Most of us do not earn over £110,000 per annum and most of us will not contribute (or have contributed on our behalf) more than £40,000 into a pension scheme during a single tax year.  The second view (however) is that for an increasing number of doctors, teachers, local authority employees and civil servants (Sir Humphrey Appleby would certainly fall into this category), the annual allowance has been allowed to become unnecessarily complicated – complex to the point where it is not only those who prefer to “read” publications with short headlines and large pictures who don’t understand it, those who read the detailed newspapers with very few pictures and long headlines don’t understand it either.  When the annual allowance becomes so complex that it causes doctors to decide that it is safer for them not to work and, in so deciding, opt not to ease the pressure on areas of this country’s health service, PN feels the point has been reached at which the annual allowance should be shown the metaphorical door.  The lifetime allowance (the value of the entirety of one’s pension benefits when one comes to retire) should remain (provided that it is revalued on a regular basis) - it serves a practical purpose.  And so saying, PN leapt back into his time machine (a red and white Mini Cooper with the flux capacitor and small nuclear reactor fitted into the boot) and punched in the year 19** to tell his younger self not to lose those notes on the analysis of newspapers.

Until next time………

(*) readers of a certain age are unlikely to need to be reminded of the summary, set out in “Yes Prime Minister”, of who read which newspaper (at that time at least).  For those needing or wanting a reminder, PN’s employer has rules about the use of appropriate language and in any case, PN tends to take extra care when using certain words - particularly when he is not completely sure who is listening to him or reading articles such as this one.  The summary starts with the observation that the Daily Mirror is read by people who think they run the country, it goes on to observe that the Financial Times is read by people who own the country and ends with the observation that readers of the Sun don’t care who runs the country provided (for the purposes of this article) she is particularly well endowed.