With the March Budget looming, Tony Watts OBE looks at what the Chancellor needs to do to encourage more people to save for their pensions – and not penalize the thrifty.
Pensions used to be such a boring subject: one that the papers would consign to a few lines on the financial pages. No longer.
Today it’s hard to turn the pages of any paper without encountering a welter of stories covering everything from auto enrolment, the rumoured switch to ISAs and women’s state pension age through to concerns over ex-pats’ pensions being frozen following a Brexit, fears of a raid on pensions through reducing tax allowances and just how many people will actually receive the full new flat rate pension…
And that’s before the worrying stories about the younger generation having to work well into their 70s just to secure a half decent workplace pension and the tumbling value of drawdown pensions.
Everyone, of all ages, is now focused on pensions – not just those heading into or in retirement. So that will ensure that any decisions George Osborne makes affecting pensions will make even more headlines come March 16th.
And all this against a backdrop of looming problems for a Government which has found (surprise, surprise) that the dosh they conveniently found down the back of the sofa to get them out of the Working Credits hole has evaporated. Oh, and a national debt that keeps on piling up month on month – despite Government pledges that we’d be making real inroads into that debt by now.
With such little room to manoeuvre, what positive things CAN the Chancellor bring to the dispatch box?
Firstly, he has got to encourage more people to save, and that will only happen if the changes he puts into place don’t further complicate an already complicated system that most of us simply don’t understand.
He also has to make sure the incentives already in place aren’t eroded to the point where people don’t bother. Creating a level playing field for all income brackets would be good too.
And savers will also want to be reassured that the scheme they are putting money into is actually secure – there have been some dire warnings in the last week that some workplace schemes, for instance, are not as solid as they should be. Equally, the fact that so many people with modest pension pots aren’t seeking independent advice before making major decisions should ring very loud alarm bells.
The overarching problem is this: most of us “get” why we should put money aside for our later life, but equally, large numbers don’t understand or have faith in what they are investing into. It’s why so many people have turned to alternative investments such as buy-to-let. Or made use of the new pension freedom to cash in funds that really should have been tucked away.
We need a pensions system that everyone in this country can comprehend and (justifiably) trust. If this Government fails to deliver that by the time it leaves office, it will have failed in one of its primary duties to the electorate.
Pensions are simply too important a responsibility for Governments to take short-term measures with – not least, using them to plug holes in a yawning deficit or to shore up political support.
Pension freedom has been a step in the right direction. Auto enrolment another. But there remains a huge amount to do. Time is ticking away for George Osborne, and the electorate won’t thank him if he fails to make further strides in the right direction on March 16th.
Go to www.retireeasy.co.uk to plan your retirement.
