Money Matters

The chancellor said nothing new about pensions today. But he did confirm that the fiendishly complex rules on pension savings introduced in last year’s Budget and December’s pre-Budget report are here to stay.

Not only does this ignore the advice of most of the pensions industry, who’ve been submitting pretty annoyed responses to the ideas over the past month or so. It also flies in the face of pensions simplification, which was introduced in 2006 and was supposed to make saving into a pension easier for most of us.

There are now a mindboggling number of rules on whether you can get pension tax relief.

If you earn over £150,000, relief will be tapered from higher rate relief of 50 per cent to 20 per cent if you earn £180,000 or over. But if you earn £130,000 or over you could also get caught out if your employer’s contributions push you into the £150,000 ‘income’ bracket.

Add a number of other qualifications around this and it makes pensions very difficult for people to understand.

Why should I care? you may ask. Those of us – me included – who don’t earn £150,000 or even £130,000 may be wondering why the government should fork out pension tax relief for people who don’t exactly need a helping hand.

Pension advisers and providers agree that this is a fair point. However, they warn that this could really have knock-on effects for all of us. The consensus is that these high earners are just going to stop saving into pensions altogether. But these guys are also often decision-makers at large companies, who are influential in deciding how generous the company pension scheme should be. It may sound self-interested, but the likelihood is that if they aren’t reaping any of the pension benefits themselves, they may be less inclined to make them generous for the rest of us.