Stop b***ering about with OUR pensions! JEFF PRESTRIDGE tells Labour

Over the past 30 years, successive Chancellors of the Exchequer, bar the odd exception, have shamefully undermined our ability to save for retirement by messing with OUR pensions.

But as we hurtle towards the Budget on October 30, it seems that the new Government’s Chancellor, Rachel Reeves, is going to take pension undermining to another level.

If the speculation is correct – and so far it hasn’t been denied by Ms Reeves’ Treasury officials – she aims to hit pensions with the equivalent of a burst from a Tommy gun.

On the Budget pension hit list is a requirement for employers to pay National Insurance on the money they pay into pensions on behalf of their workers. A move that ultimately workers would pay for through lower wages and reduced employer pension contributions.

The Chancellor is also looking to end the exemption of pension pots from inheritance tax. But what would cause most damage, as far as many savers are concerned, is that she has her eye on the tax-free lump sum that we can take from our pension fund.

Currently, most savers can access 25 per cent of their pension pot tax-free once they reach age 55, up to a limit of £268,275. But Ms Reeves is keen to crunch the cap to just £100,000 – a move that could raise £2billion a year in extra taxes.

Rumour has it, she and her underlings have already held talks with providers as to how feasible such a move would be to implement (hopefully, the answer is: ‘bloody difficult’).

So far, the only pensions change she has ruled out is a reduction in the tax relief that higher and additional rate taxpayers enjoy on pension contributions.

Why? It is not because of how complicated it would be to introduce (a minefield), or how unfair it would be on a generation currently striving to do the right thing and save for the future.

No. It’s because the move would penalise up to one million public sector workers, many of whom have already been given inflation-busting pay rises. In other words, molly-coddling the unions.

The Chancellor’s upcoming assault on pensions is driven in part by necessity: her need, or so she says, to tackle the alleged £22billion black hole in the public finances left by the Conservatives.

Without breaking Labour’s manifesto commitment not to increase the rates of income tax, VAT or National Insurance, Ms Reeves believes she has no choice but to look at pensions to raise extra tax revenues.

But this is a ruse. The decision to go after pensions is primarily driven by political dogma. Labour hates those who have accumulated wealth through hard work and patient saving.

The prudent, it believes, should be punished – with higher taxes on their investments (capital gains tax), the wealth they pass on to loved ones (inheritance tax) and on their pensions. Code for wealth redistribution and socialism.

Numerous financial experts have described Labour’s likely savaging of pension tax-free cash as ‘incendiary’. Some believe it could trigger legal challenges from workers who have based their retirement planning on having a large tax-free lump sum to pay off debt such as an interest-only mortgage. But more worrying is its impact on the nation’s savings habit, short and long term.

Many savers are worried sick over what to do with their pensions (Money Mail has been inundated with readers’ requests for help). Panic has prevailed. For example, fearing a cut in tax relief on contributions, many higher rate taxpayers have piled money into their pensions ahead of the Budget.

One wealth manager, Evelyn Partners, saw a ten-fold increase in contributions to self-invested personal pensions in September alone.

These savers should not have been driven by fear.

More worryingly, many savers have rushed to access their pension pots without really thinking through the financial consequences.

Some will have been driven to take tax-free cash to clear a debt such as a mortgage. But others have accessed the cash without a financial plan. As a result, the money taken might have been tax-free, but it is likely to attract tax on any interest it generates unless it is placed inside a tax-free savings account.

They have also lost the investment growth it might have benefited from if it had remained in a pension fund.

Longer term, the impact of Reeves’ assault on pensions will be detrimental. Why should people in their 20s and 30s park money inside a pension if, further down the line, they suspect a future Chancellor will come looking for a tax grab? Reeves is not the only Chancellor who has turned to pensions to boost the public finances.

The most heinous pension crime of all was committed by Gordon Brown back in 1997 when, fresh from a landslide election, he launched a £5billion annual tax raid on company pensions.

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This triggered the end of many final salary pension plans that ‘guaranteed’ workers a retirement income based on years worked and their salary at retirement.

Even 27 years on, there are many former Labour supporters who have never forgiven Mr Brown for robbing them of the comfy retirement they had assumed.

Post Brown, we’ve seen plenty more political meddling with pensions – some of it admittedly good or empowering, such auto-enrolment of most workers into pensions (good) and George Osborne’s decision to allow workers to access their pensions from 55 (empowering).

Yet other decisions have caused mayhem – most notably, changes to the size of pension that workers can build without extra taxes being levied when they come to access it. This so-called lifetime allowance has been trimmed and trimmed – only for the previous Conservative Chancellor (Jeremy Hunt) to give it the bullet.

How can you plan for the future against such a backdrop of perpetual change?

Over the past 24 hours, I’ve spoken to several financial experts about the propensity of governments to ‘bug**r around’ with our pensions. They are united in what they say – it undermines the nation’s confidence in pensions as a long-term savings vehicle. Tom McPhail, one of the country’s leading pension experts, says governments should not treat our retirement savings ‘like a piggy bank’.

He believes the best way forward is for the Government to form an independent long-term savings commission to advise on, and oversee, any future changes to pensions.

Rather than fleece our pensions on October 30, Ms Reeves should take up Mr McPhail’s challenge and set up such a commission.

Leave OUR pensions alone.