Nothing is set in stone in this world any more – the only certainties are death and taxes. Wise words, from Benjamin Franklin, of course.
Words that also seem relevant to what is happening today, or coming tomorrow, in the pensions planning and retirement savings landscape in the UK.
So much is changing in the legal framework around pensions saving at the moment, that could have an impact on our long-term financial planning for retirement.
Perhaps we run the risk of assuming, for instance, that alongside any personal pension saving we can factor in a certain amount of state support (in the form of a state pension) in retirement. The question is: will that be worth as much as it is today?
A quick look back will show that what is here today, in terms of financial supports from the state, is often gone tomorrow. Perhaps this is a good time to remind ourselves of all that has come, and gone, not just for pension income, but in terms of benefits and incentives for personal saving.
Take life insurance, for instance. Did you know there once were tax incentives to insure yourself? In the 1970s there was 15% tax relief on life insurance contributions – but Life Assurance Premium Relief was scrapped in 1984.
Looking at mortgages, during the 90s, there was Mortgage Interest Relief at Source (MIRAS), which gave you tax relief on your mortgage repayments. That started at up to 40%, was gradually cut and cut down to just 10%, and then disappeared completely in 2000.
Then there’s the basic state pension. Many pensioners coming into retirement in the 1970s were generally reasonably comfortable on the basic state pension.
Now the experts say that, since 1979, that same state pension has dwindled to a fraction of its value, due to the ravages of inflation. Now the state pension is under a third of the average wage, and a third of our pensioners are officially ‘in poverty’, according to the EU.
And just this decade, this year in fact, the Child Trust Fund has come and gone. Billed as the greatest savings incentive scheme in the history of the nation, with each new parent receiving a £250 voucher to start an account for their child – the Scheme was axed in the recent June budget.
So what happens next, in the ever-changing landscape of savings incentives?
Further changes and further upheaval. At the moment you can save up to £255,000 a year, with tax relief, into your pension. Next year, that generous allowance goes forever, falling to somewhere between £30,000 and £45,000 – although this, admittedly, affects mainly higher earners only.
At the same time, if the National Employment Savings Trust goes ahead as proposed, there will be changes that affect everyone. Under NEST, all workers will build up their own workplace pension. However, the cash they have saved will probably cut them off from getting the pension credits top-up on their state pension. What the Government gives with one hand, is taken away with the other.
The point is that ‘pension planning’ has seldom been more difficult, when so much tinkering is going on around the edges of the pensions system that even the Revenue has admitted it can’t keep up.
Benjamin Franklin certainly had a point – we can make no assumptions about what the future will bring, we can simply listen to our financial adviser, and ensure that we are providing for ourselves, because providing for ourselves is the only way to ensure that we are in control.
