In the way I used to go bed on Christmas Eve and think “Oh Santa please be good to me!”, I went to bed last Tuesday night thinking “Oh Mr Chancellor, please be good to me!” Or, more accurately, “Oh Mr Chancellor, please don’t muck with my pensions!”
This was partly inspired by something I mentioned in my last blog, that it wasn’t so long ago that a Chancellor decided you just couldn’t retire and claim a pension at 50 any.more, you’d have to wait until you were 55. Five years onto your working life, at a stroke. If, on Wednesday, the chancellor had announced that he’d decided you now couldn’t claim any pensions until you were sixty, that would so screw up my forward plans I can’t actually bare to think about it.
If there’s one thing I increasingly focus more on than my Isas and investments, it’s me and my wife’s pensions. And you need to because, compared to Isas, pensions are a complicated, maddening, mess of regulations, tax laws, restricted stipulations, sneaky stealth moves and, to be fair, generous loopholes that drive you insane.
As my wife and I approach 55, I’m really starting to think hard about our options. I thought I had devised a simple but cunning plan to transfer some of our ISA savings into a SIPP for my wife in order to grab the twenty percent tax bonus offered by the government for doing so.
I planned maybe a fifty grand deposit to be matched by the twenty percent rebate, which was certainly worth having for making a few mouse clicks. After all, I could invest in the exact same Vanguard 60/40 Lifestyle Fund in the SIPP that I was planning in the ISA anyway.
That was Stage One of the plan. Stage Two was that she would then draw around ten grand a year from the SIPP tax free over the next five years. When she reached sixty, she could then access her NHS pensions, at her “Normal Pensionable Age” and therefore maxing the benefit over time. Ya beauty. Simple, elegant and straightforward, eh?
Not a bit of it. First restriction: it turns out my wife can’t deposit more in a SIPP than she actually earns in a year. Which is nowhere near fifty grand, more like fifteen. And she can’t deposit fifteen either, because her current work pension deposits also count toward that fifteen limit. And the fifteen includes the tax rebate too.
Okay, not as straightforward as I thought, but nothing that my ‘O” level arithmetic and a bit of research can’t handle. With some quick moves, I can deposit into the SIPP this tax year, next tax year and the tax year after that – it’s not the fifty grand total I planned, but it’s close. Except, it turns out, it’s not that simple! If she gives up work on her 55th bIrthday then she’ll only have worked eight months in that tax year, and therefore her earnings and contributions have to be adjusted down accordingly. FFS. More research, more arithmetic.
Then I have my own pension to worry about. Have you heard of the LTA? Given you’re reading a blog like this you probably will have and you better start trying to focus on whether or not it applies to you – because it probably will.
The LTA is basically the amount you can have in all your pension pots before the government taxes the excess at fifty five percent. Fifty five percent!!!! Rod Stewart emigrated to avoid tax bands like these and by no stretch of any imagination in any direction – money, hair, leggy blonde birds – am I Rod Stewart. But I am in danger of exceeding the current LTA on my pensions. Or I think I am. “Think” because about six weeks ago I wrote to Aon Hewitt asking them to give me a cash equivalent figure on the pot that will fund a defined benefit pension that I have. I’m still frigging waiting on a response, despite calling them, writing via snail mail and chewing my nails that the chancellor would reduce the limit again in the current budget.
No doubt you’d be able to claim some sort of protection against such cuts, and maybe people were given a few years to get their head around the fact that they couldn’t retire at fifty any more. It’s not the first time that the LTA has been reduced, and each time you have had an option to apply for protection on your funds against the allowance being cut again. I wonder what percentage of the population have done so? Two percent? With the rest grazing on the grass contentedly, like sheep waiting to be fleeced by HMRC.
Honestly, when I see what has happened over university tuition fees, I think the Chancellor could pretty much do what he wants on pensions if all he took notice of was the general public. If he decided to tax all pots greater than 250k at seventy percent, the general population would ask, “Yeah, but did you see Kim Kardashian on telly last night?” The only reason he even thinks about the consequences of such moves are because The City wants more coming into their coffers rather than less. They want people in pensions so that they can rake in more on fees. Any moves that have people looking elsewhere, like putting their cash under a mattress, or even worse, putting it into those upstart P2P funds, need to be stomped on at birth. Who wants more cash from your pension pot, the Government or The City? Probably the Government wants it more but The City won’t let them have it, not in any straightforward way. Hence the labyrinth of rules and regulations you need to get your head around to protect yourself or, even worse, try and make some sensible financial moves to benefit yourself when it comes to your life savings. Oh yes, they want to encourage you to provide for yourself in the older years, but only if they can take a slice of your pie on the way through. It’s up to you to make sure that slice is as small as possible.