By Michael Baxter
It was hailed as an Autumn Statement designed to help businesses. But the truth is that both George Osborne and Ed Balls delivered a hail of rhetoric, but said very little of substance.
Here is one measure introduced by George that Ed didn’t seem to disagree with. Not that the Balls speech yesterday was easy to follow, and who knows what he really thought.
But Mr Osborne elected to reduce the amount of tax deductible money that you can put into your pension in any one year.
Instead of £50,000 a year, you can now only enjoy tax relief on £40,000.
Of course the pension industry is up in arms. But frankly they miss the point.
Yes it’s true that the baby boomers amongst us need to find a way to secure more income for that future date when we retire. But is putting more in a pension really the answer? All that pension firms do, hamstrung as they are by the regulator, is pour a big chunk of their investor’s money into bonds paying out yields that are less than the rate of inflation.
Here is a tip, if you want to find a guaranteed way to lose money and contribute to the UK’s malaise, put your money in safe assets, such as government bonds. And it is hard to think of a better way to blow your money than putting it into a pension.
What the UK needs is for savers to be a touch more proactive. If you are saving for your retirement, consider putting money into for example SEIS schemes backing start-ups, or into ISAs, or indeed a SIPP — that’s a Self-Invested Personal Pension.
Low interest rates and the gradual erosion of tax breaks on pensions may seem short sighted, but actually what UK plc needs is for its savings industry to be less risk averse. The great irony is that mortgage securitisation was designed to reduce risk. But when we are all at it — taking as few risks as possible — the economy stutters, and risk actually increases across the world.
The problem was not that the Chancellor has made a life a little harder for the pension industry; it was rather that he sent out a sign that he doesn’t get it.
Entrepreneurs’ income fluctuates wildly. Some years are good, some years are bad. In his Autumn Statement, George Osborne reduced the lifetime allowance for pension contributions from £1.5 million to £1.25 million. Okay, that is reasonable. But what about an entrepreneur, who has put all spare money into his or her business year on year, and then suddenly starts to reap the benefits? Such an entrepreneur won’t have had the luxury of putting big slugs of money into a pension. But when finally the good times arrive, the opportunity to catch-up is removed because there is a £40,000 annual allowance.
A life-time allowance is reasonable, but an annual allowance discriminates against those who actually went out and created wealth, instead of putting spare money into a pension which squandered it on government debt, and buying low risk securities, consequently sucking dynamism out of the economy.
Neither George Osborne nor Ed Balls get this, because they have little real world experience.
Michael Baxter, firstname.lastname@example.org