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.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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."
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Investors pull money from UK equities as government warns of “painful” Budget
The government’s post-election honeymoon period has been short-lived, and investors are shying away from UK equities as a result
By Katie Williams Published
-
Top global fintech companies to invest in
One British fintech hogs the headlines, but there are two top performers in the US. We explain where you should put your money
By David C. Stevenson Published
-
The myth of hypothecated taxes
Editor's letter The government wants to add a penny on our National Insurance contributions to pay for social care. But it won’t, says Merryn Somerset Webb. It will just vanish into the black hole of our public finances.
By Merryn Somerset Webb Published
-
Should capital gains tax be higher or lower?
Editor's letter Capital gains tax is up for review. There are plenty of long-term arguments to be had about this. But in the short term, Merryn Somerset Webb has a few ideas for the government should it want a little cash inflow.
By Merryn Somerset Webb Published
-
The best thing you can do for your children is to secure your own finances
Editor's letter The "Bank of Mum and Dad" is now the 11th-largest mortgage lender in the UK. But giving your children money may not be the best way to help them, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Inheritance tax: just abolish the entire thing
Editor's letter Why not abolish inheritance tax and replace it with a gift tax on the recipients of unearned cash – wherever it comes from?
By Merryn Somerset Webb Published
-
Good news for defined-benefits pensions
Editor's letter A rate rise or two could make the defined-benefits pensions deficit simply disappear, says Merryn Somerset Webb. In the meantime, there are a couple of things pension fund managers could do to help things along.
By Merryn Somerset Webb Published
-
Don't get too relaxed about your pension
Editor's letter George Osborne might leave pensions alone for now, says Merryn Somerset Webb. But don't count on it staying that way.
By Merryn Somerset Webb Published
-
Pensions: the counter-revolution
Editor's letter An awful lot of people are beginning to wish Geogre Osborne had never started down the path of pensions reform, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Three pension traps for the unwary
Editor's letter Pensions Freedom Day is almost upon us and you're right to be excited, says Merryn Somerset Webb. Just watch out for these three pitfalls.
By Merryn Somerset Webb Published