As the UK economy comes under more stress due to the current COVID crisis, thoughts turn to where the Government will look to recoup the mounting debts. Will pensions be an easy target?
During an early morning networking event last week, we were all pointed in the direction of a website that shows the most asked questions on the internet on given topics. After the event, I was intrigued to see what was being asked about my industry, so I turned to the most interesting topic I could think of… pensions!
It’s commonly assumed that pensions can be complicated. Not only is there a lot of jargon to get to grasps with, but there are also likewise many different rules you are required to follow should you wish to avoid any potentially hefty fines. It comes as no surprise then that people are turning to Google for answers.
So where are we now? This year the government is spending a staggering sum of £280bn on measures to fight Covid-19 and its impact on the economy. Its highly speculated that capital gains tax (CGT) is in the firing line, however, will Rishi Sunak go one step further and cut pension tax relief at some point or even completely abolish it altogether?
Usually, when you save into a pension, the government likes to reward you for saving for your future. This comes in the form of tax relief. When tax relief is given on pension contributions, some of the money that you would have paid in tax on your earnings goes into your pension rather than to the government. Tax relief is paid on your pension contributions at the highest rate of income tax you pay. So, basic-rate taxpayers get 20% pension tax relief, higher-rate taxpayers can claim 40% and additional-rate taxpayers can claim 45% pension tax relief.
It has been speculated many times before that the government could look to reduce the tax-relief given on pension contributions. If this was ever to become reality, the attractiveness of pensions and their tax efficiency would certainly be reduced. People may start to look at alternatives to provide their income in the future during retirement, but what could this be?
- If more people started to invest in property to provide their income, what effect could this have on an already over inflated property market?
- Would people turn to stashing money under the bed due to the poor returns with the banks and the over complicated, less attractive pension offerings?
- Would ISA’s become a more important part of somebody’s retirement plans and are we going to see more products like the lifetime ISA?
- Are people not going to save at all and rely on the government to provide for them?
Have you had any thoughts about how you are going to fund your retirement?
Research by Royal London discovered that the average saver will need a fund of £666,000 to retire to the same standard of living as today’s retirees enjoy. Unfortunately, there is an underwhelming shortfall to this figure with the average pension pot for those aged 30 to 40 being just £14,000. If you are worried about not having enough saved to pursue your aspirations and goals when you make the big decision to retire, speaking to one of our highly skilled financial advisers at Elevation could help you devise and implement a strategy to help you get there.
Please note, this does not constitute for advice and is for information only.