Editor's letter

Save into your pension while you can

Fiddling with pension tax relief could be a nice little earner for a government hungry for cash, says Merryn Somerset Webb. Save what you can while you can.


Like most other readers, I hate doing my tax return. I put it off until the last possible minute (or until I start to worry that my promises to my accountant that I am on the case are beginning to sound like lies). But this year the whole admin nightmare is gearing up to be even worse than usual. That's because, thanks to a mixture of enthusiastic pension-saving (I'm not as young as I was and that scares me) and a missing bit of admin, I have gone over my annual contribution allowance (which has fallen from £255,000 in 2010 to £40,000 for most people now, and a miserly £10,000 for high earners). And that means that I have to pay a (very difficult to calculate) tax penalty via my self-assessment form.

I'd like to tell you that I am alone in this misery. But I am not. Numbers out this week show that the number of people who have gone over their allowance, and therefore have to pay up, tripled in the past tax year from 5,430 to 16,590. The total take by HMRC more than tripled from £143m to a £517m. It's a similar story for the Lifetime Allowance: the number of people breaching the limit here (£1.8m in 2010, £1.03m now) and therefore having to pay extra has risen from 1,180 to 2,12, and the HMRC take has gone from £66m to £102m.

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Most pension savers won't be bothered by these numbers they will think anyone saving £10,000 to £40,000 a year or building up a pot of more than £1m to be beyond sympathy. But they should be bothered. Because, as Steve Webb, director of policy at Royal London, points out, the tax bills are both "huge" and likely to rise as the ability to carry forward unused allowances from previous years (you can do this for three years) falls out of the system. That might not be nice news for savers, but it's great news for the chancellor, who will be "looking at these figures with great interest" as they suggest that fiddling with pension tax relief could be "a rich source of additional revenue". Save what you can while you can.

On the plus side, all this does mean there is more money in my pension that needs to be put to work. I'll be looking at Max King's suggestion in the magazine this week of the Henderson Euro Trust and I'll also be thinking about putting a little money to work in Poland. Investment trust fans can do this via BlackRock Emerging Europe or Baring Emerging Europe. But owning either of them means accepting that around 60% of your investment will be in Russia. That may be fine (Russia is at least cheap) but if it isn't for you, look instead at the iShares MSCI Poland exchange traded fund (LSE: SPOL). It isn't as cheap as other ETFs (0.63%) and it is heavy in financials. But it is at least a pure play on a country that has seen 26 years of uninterrupted growth, and that is unlikely to be bullied into joining the euro and that is, says Matthew, still making "remarkable progress."



Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019

Good news for pensions savers from HMRC

HMRC has withdrawn its appeal over breaches of the pensions lifetime allowance.
28 Jun 2019
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Don’t miss the pensions deadline

There are just five weeks left in the 2018-2019 tax year, so make sure you’ve made full use of your allowances.
6 Mar 2019

Doctors shouldn’t get special treatment for their pensions

Doctors whose pensions are too big want an exemption from the lifetime allowance. They shouldn’t get it, says Merryn Somerset Webb.
30 Jan 2019

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