The Conservatives, having won the general election, have apparently decided they have no one within their ranks of MPs with sufficient pensions knowledge to become Pensions Minister. Steve Webb was always going to be a hard act to follow. Instead they have turned to Dr Ros Altmann, a well-known figure in the pensions industry, and whose own website says she is “a pensions and economics policy expert”. Dr Altmann has just said that her priorities as Pensions Minister will be “to strengthen British pensions, improve later life incomes, and protect the pensioners of today and tomorrow”.
Her first major task will be to keep the Treasury’s hands off the pension piggy bank. Not an easy task as Steve Webb found out. Since 2006 we have had a lifetime allowance: a ceiling on the amount of tax-privileged pension savings any one individual can accumulate. The recent coalition government in the last five years cut the lifetime allowance once, and the Conservative government is now planning to cut it again from April 2016. Dr Altmann thinks this is a bad idea, at least she did before she became Pensions Minister, and so do I. Lowering the lifetime allowance “adds more complexity and penalises investment success – both are bad for pensions”. These are not my words, but those of Dr Altmann. She says the whole point of pension saving is to benefit from long-term investment returns. That means it makes sense to limit the amount people can put in with the help of tax relief, but makes no sense to then try and punish them if their fund goes up sharply. She is on record as calling for the abolition of the lifetime allowance, at least in so far as it relates to defined contribution arrangements. All this makes total sense and I am totally in line with these views.
In addition, the accepted view amongst pension experts is that provision for private pensions should be exempt from taxation on contributions and investment gains, but taxed on withdrawal. The Government gets its bite of the cherry, but only has one bite. Dr Altmann is not convinced replacing the current tax system is a good idea and has argued that with pensions already undergoing seismic reform, changing the tax reliefs would be a step too far and would simply add cost and complexity. Once again I find myself in total agreement with her. Pension tax relief is meant to encourage people to lock money away into pension savings for their old age. And by people I don’t just mean the less well off. Yes, the government wants us to save enough for our old age so that we are not a burden on the state, but it should also want us to save enough that we as pensioners will spend on consumer goods and aid economic growth in the country. Not necessarily in purchasing Lamborghinis!