Political opinion with Andrew Griffith MP: Developments risk eroding confidence in the pensions system
Representing a part of the country with a more elderly population than average, I am conscious of the importance of pensions policy – although really it matters to everyone.
There are some ‘hard truths’ which the country needs to understand about the unaffordability of generous public sector pensions paid for by taxpayers, as well as the fact that most are not saving enough into their pension from their over-taxed pay to enjoy the desired lifestyle in retirement.
The very last thing any policy should do is deter people from saving into a pension for their retirement, yet that is precisely what government proposals we have been debating in Westminster will do.
A major concern is the idea that government should mandate how pension funds invest. Under proposals linked to the current Pension Schemes Bill, ministers would force pension schemes to allocate a minimum portion of their assets to invest in things of the governments choosing. Having raised taxes to the max, the government now has its eyes on billions of private pension fund money for domestic investment to stimulate economic growth. However, we Conservatives believe that compelling funds to invest in particular projects or company’s risks politicising retirement savings and could lead to lower returns for pensioners.
At the same time, changes to the tax treatment of pensions are weakening another longstanding incentive to save. Historically, pension pots have sat outside the scope of inheritance tax, making them an attractive way to hold savings if funds were not fully used during retirement. However, the government has announced that most unused pension funds and death benefits will be brought within the value of a person’s estate for inheritance tax purposes from next year. This reform means that pension savings could face inheritance tax at the standard 40% rate.
Taken together, these developments risk eroding confidence in the pensions system. In the long run, encouraging people to save requires trust. Any policies that weaken trust undermine this.