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The live now, pay later culture just got another boost

Whatever pious comments George Osborne, UK finance minister, or David Cameron might make about encouraging savings for the long term and less reliance on borrowing, blah, blah, blah, this sort of policy, assuming it is true, shows that this government does not give a rat’s arse about encouraging savings. Coupled with the new top tax rate of 50 per cent, reduced tax-free allowances and other adjustments, the enterprising class of those who work to build up pension pots for themselves just got a serious setback.

At a time when there is so much talk about a pensions “time-bomb”, this sort of announcement is also disheartening since it sends out the message that pension schemes are a contrick. My own managing director at the firm at which I am now a small partner does not bother with pensions and intends to rely on his own business/properties to pay for his old age. When announcements like this come out, who is to say he is really wrong?

17 comments to The live now, pay later culture just got another boost

  • A month ago, I tood a decision about an “insurance policy”, taken out in 1988 with “Allied Dunbar” via Judy Tame of fond memory (many of you will know her) which would cost then about £127 a month, and would pay off my mortgage of £70,000 plus leave me with a “pot” at retirment of an estimated £69,000.

    After Gordon Brown’s first pensions raid, I reduced the payments to £40 a month, at which time it was worth £2,750 after about 10 years.

    This August just gone, it was with the residuary legatees of Allied Dunbar, Zurich Insurance, and was worth £2,240.

    I cashed it in and saved £40 a month of current income, and paid some small debts.

    I rest my case.

  • Andrew Duffin

    The State is not your friend.

    Nobody here will be surprised, I imagine.

  • Saver

    Um, not quite with you here.

    I dislike tax as much as anybody else. I am also for tax-neutrality – ie, unless there’s a very good reason otherwise, I should be taxed, if I must be, in the same way however I choose to save or spend my money. I don’t in general want exceptions. I want lower taxes across the board. Tax exceptions for some represent extra tax costs for others. No free lunch etc.

    Pension tax relief is widely considered an exception to neutrality. It is deemed that pension saving is so important that it merits special tax relief. It is (arguably) so deemed because encouraging such saving stops the taxpayer having to bail out the starving later on.

    Therefore, if you buy that theory, the tax relief needs to be enough to see that people’s private pensions mean that don’t starve. If they want to save more than that and get a bigger pension, fine, but why should I subsidise them? Hence there is a fair case for restrictions on pension tax relief.

    Merryn Somerset-Webb (hardly a closet Leftie) makes the argument in greater depth here – http://www.moneyweek.com/personal-finance/merryn-somerset-webb-cap-pension-contributions-02402.aspx .

  • AverageJoe

    Yeah from what I understand they have reduced the annual threshold from like 250K a year to 50K a year.

    Bad news if you put more than 50K a year into your pension pot but who does that?

    I dont like taxes but this will not hurt the middle classes.

    Does that rhyme?

  • Brad

    All pre-tax contributions should be done away with. It is all just slight of hand anyway making the process of producing, consuming, saving, and rendering unto Ceasar that much more convoluted. And because the pre-tax contributions are allowed by the State, they get to control who, what, when, where etc etc. I’d rather pay the tax now and own the money as free and clear as possible when the money is socialistically controlled anyway. The extra growth due to tax free compounding is going to be skimmed off in the future with higher tax rates anyway, so I might as well not put it into special State contolled pots with all the other red tape.

  • John B

    Yes, David.
    A lot of investments (all investments?) have gone that route.
    There was the poverty of the mid 1970s when, for example, the amount you were allowed to take on holiday was GBP50.
    Then came compromise Maggie and slowly prosperity returned until there were all sorts of exciting investments in the 1980s and 90s, (even extending into the 2000s, it takes time for destruction to work through.) Okay, there were some horror moments like Black Monday in 1987, but things kept growing.
    Maggie was eventually destroyed as a coherent political force, and replaced.
    (How that was done is worth detailed analysis.)
    After some years of compromised compromise by the Conservatives, New Labour set up Tony Blair who was made to look more conservative and sensible than the Conservatives. So eventually he won.
    Then, to cut a long story short, he was trashed over time and, welcome Old Labour and all the old bad guys from the 1970s. (Just look at some of the names.)
    The electorate managed to wake up slightly and throw off some of the mind conditioning fog.
    So we have now got an anaemic compromised compromise of a Conservative back in office.
    Too late for your insurance policy and many others, and possibly for the economic system.
    Which has, indeed, been emptied of much of its value and seems to be in quantative-easing free fall.
    I know you know all this.
    I think David Cameron is being steered into policies of failure and compromise.
    One of the things that quite astounds me is how little has to be done right to keep relative prosperity going.
    It seems to me as though most people are smashing the ship up and yet it floats.

  • John Galt


    I think David Cameron is being steered into policies of failure and compromise.

    What noone seems to accept is that David Cameron is not ‘The Heir to Blair’, and he’s most certainly not ‘The new Maggie Thatcher’.

    The PM of recent times that David Cameron reminds me of in many different ways is Ted Heath.

    We all remember how well that ended up don’t we?

    My only remaining hope is that the ConDem Coalition will so piss-off everybody from every group that the middle class will break away from all three main parties and start backing UKIP – the only party that actually represents the majority of voters.

    I might live in cloud cuckoo land, but I live in everlasting hope…

  • PeterT

    I think the government’s ‘attack’ on middle class benefits is a good thing. By removing them or their universality, or taxing them, the support for the welfare state will be eroded. Of course, the middle class are also the great financiers of the welfare state, so will be hit twice (through paying more and getting less) during the transition phase. But that’s well deserved punishment for for keeping Labor in power for 13 years (I did not vote Labour so don’t deserve it of course). The Brown report on Universities is also great news. I haven’t yet regretted making the effort to vote the Tories in. It will come I am sure.

  • John B

    John Galt,
    Yes, it’s almost like a re-run of the 1970s.
    Cameron is indeed the anaemic and rather soggy Conservative similar to Heath.
    Not that they need to be harsh but some robust accuracy seasoned with a bit of common sense and courage would go a long way to restore sanity.

  • Is that the new definition of the ‘aspiring middle classes’ – people who have £50,000 to spare each year to pop into a pension?

    I’d like to point out two things:

    1. Tax breaks for pension savings are entirely illusory. They all get creamed off by the pensions companies and paper shufflers, and you only get back what you paid in.

    2. This move is a cunning plan introduced under Labour to clobber civil servants in final salary schemes who get pay rises and so is to be welcomed.

    What’s not to like?

  • PeterT

    I meant Labour with a ‘u’ of course.

    John Galt’s second to last paragraph on the middle class ties in with my idea. A less benign scenario than a UKIP government (apart from their wrong views on immigration) is that voters will have forgotten about Labour’s sins and re-elect them having tired of the harsh reality check brought about by the ConLib government.

  • thefrollickingmole

    Im interested in why any of the above posters think there will be anything of value left in a pension fund within 20 years?

    Seriously, either the mad hatters printing of money, or a few strategic rule changes (Gordon Im looking at you) and the value of investments becomes bugger all.

  • John B

    Frollick, I think it’s because they believe in the “zero sum game” in which if you are rich then they must be poor.
    So they perhaps think if they can impoverish everyone else they will become super mega wealthier than they are?

    It was interesting to see the expression of what looked like serious white-faced fear on Paulson’s visage before the 2008 bailout went through, when it had been voted down, and before it was bullied through.

  • Johnathan Pearce

    I am amused to read those who think that because it is “only the rich that will suffer”, that this is okay, nothing to worry about, please move on, yada-yada. How downright complacent can we get? Rather than trim the tax-free advantages of piling up a nest egg, any serious conservative government (ie, not this one), should make all investments tax-free, period. As a result, we would not be so reliant on debt financing, which I consider to be the fatal weakness of the current UK economy.

    Look at the thriving economies of Asia, esp. the likes of Japan in the 60s and 70s, Taiwan, South Korea and Singapore. All of them treat savings benignly for tax reasons. The economic results speak for themselves.

  • John B

    “All of them treat savings benignly for tax reasons. The economic results speak for themselves.”

    With you all the way on that, Jonathan.
    It is deferred consumption of wealth that can be used elsewhere to promote growth.

  • Politicians are good as plappering as always.. What else is new? *yawns*

  • Paul Marks

    “Saver” – higher taxes on savings (for pensions or other sorts of savings) never mean lower taxes on other things. It just does not work that way.

    J.P. is right – at a time when the savings base is so small and debts are so big, the govenrment is actually working (by its actions) to REDUCE savings and has been for a long time (as David Davis shows).

    And yet “Uncle Vince” Cable goes on about how the banks are not lending enough and…..

    Reduce savings and expect more investment – and I be they do not even see a contradiction.

    If I was a young man I would get out of this madhouse.

    If any young (or youngish) person reads this – get out, get out now.

    Certainly the madness is to some extent universal – but many places are not as bad as here.