‘Tension’ as pension cuts divide the generations

THE Chancellor’s pension changes may spark ‘ tension’ between today’s workers and the retired, as younger staff face having a third less to spend when they stop work, say experts.

George Osborne’s radical reshaping of tax benefits is expected to hit middle-class savers hardest. Specialists warn it risks ‘inflaming inter-generation tensions’ as jealous employees in their 40s realise they will be much worse off than previous pensioners.

The Chancellor plans to cut tax relief on pension savings, financial services firm Hargreaves Lansdown said. It warned today’s labour force is set to receive around a third less than current pensioners and any further changes could widen the divide. The average private pension pot held by those aged around 60 is about £149,300 but staff now in their 40s will have only £112,000.

Tom McPhail, Hargreaves’ head of retirement policy, said help must be equal for all ages or it risks ‘exacerbating the inequalities’ between the old and those still working: ‘Today’s pensioners have worked hard and are enjoying the fruits of their labours.

‘Younger workers ... look with understandable envy at the generous guaranteed pensions enjoyed by many. Workers in their 20s, 30s and 40s today can look forward to later retirement, lower contributions and fewer guarantees. Reduction to the support given by the government to pension savers risks inflaming intergeneration tension.’ The Mail has reported tax-free pension lump sums could be axed too.

Basic taxpayers receive £2 of tax relief per £8 they put in a pension; those earning more than £42,385 get £4 for each £6. The government is considering giving all savers £2.50 for every £7.50 saved, regardless of earnings. It may even scrap rellief and let pensions be drawn tax-free, like an ISA.

Ex-minister Steve Webb, who works for pension firm Royal London, said: ‘A pension ISA steals billions of pounds in tax revenues from the next generation who will need the money to fund the public services of an ageing society.’