The state has harmed private pensions
Until relatively recently, the United Kingdom could boast the best provision of private and occupational pensions in Europe, possibly in the world. For a country that was dangerously wedded to spending and borrowing too much, the fact that many of its citizens were also putting money aside for their old age was clearly a good thing.
That all began to change with the first Labour Budget introduced by Gordon Brown in 1997. His infamous removal of dividend tax credits from pension funds killed off defined benefit, or final salary, schemes as the overall value of pots plummeted.
The cumulative cost is estimated at close to £250billion of lost investments. Chancellors ever since have found it hard to resist tinkering with what remained, resenting the tax reliefs that were designed to encourage saving for the future but which deprived the Treasury of cash for current spending.
The credit crunch of 2008 and the subsequent recession hit pensions still further – not just the fall in equity values but also the measures taken to stave off economic collapse, notably quantitative easing.
There then followed more reforms under George Osborne, notably the reductions in the level of tax-free annual pension contributions and a steep cut in the lifetime allowance from £1.8million in 2010 to just over £1million. This had perverse consequences, dissuading well-paid professionals such as doctors from staying in work.
In his Budget today, Jeremy Hunt is expected to address this disincentive and return the annual cap to where it was in 2010. The Chancellor hopes this will help retirement planning and stop senior NHS consultants leaving in their late 50s.
But this, too, could have the reverse effect by allowing higher-paid people to accumulate a bigger pension earlier, at which point they still opt for early retirement. Moreover, the annual allowance increase to £60,000 will still be well short of the £255,000 level where it stood 12 years ago.
The reforms are part of a broader attempt to get people back into work after post-pandemic figures show a marked decline in the workforce. But over the years, there has been too much interference with our pensions. Every Budget seems to unpick the errors made by predecessors. Mr Hunt should redress past mistakes – and then leave well alone.