Great Expectations

So against all the odds we have a Conservative government. The good news is we know to some extent what that means in terms of financial planning, particularly for pensions.

Without a coalition or different political party in power, any concerns over plans to scupper or radically alter the Conservatives approach to pension freedoms is now unlikely. Furthermore, the appointment of Dr Ros Altman as the new pension’s minister and a known fan of a more flexible pensions regime adds further support to changes coming on stream.

So with a stable government in office over the next 5 years we can certainly plan with more confidence. But – and there’s always a but – certain elements of the planned pension changes still sit uneasy with the overall aims of encouraging people to save more. Specifically, plans to reduce the lifetime allowance to £1 million as from April 2016. As I’ve discussed in earlier blogs and articles in the trade press, £1 million may seem a large sum to accumulate, but for those who have made the effort to contribute to their retirement regularly over the years on the basis of a limit that was practically 50% higher in 2012, it’s anything but encouraging.

Nor is it good news for the younger generation who have taken onboard the savings message. Again, many of them will hit the limit way before reaching pensionable age, which will see them suffer a 55% tax charge for the sin of saving diligently. To put it in perspective, anyone currently aged 35 or younger in white collar employment who saves towards their pension regularly is likely to breach the £1m limit.

We all understand the need to keep tighter control of the public purse, but surely restricting tax relief on pensions rather than penalising contributions is a better way forward? We can only hope Dr Altman takes note of the current head of steam being built up on further reductions in the lifetime allowance and makes some sensible changes.

In the meantime, the financial planning sector needs to work swiftly to ensure clients are armed with the necessary information to encourage the type of responsible decisions that safeguard and maximise their long term savings plans in the light of pension changes.

On that note, it’s worth reminding ourselves that the Conservative government has said winter fuel payments, free TV licenses and bus passes will continue for all pensioners. For those who don’t take the right financial advice, it may be as good as it gets.

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