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.

916_MW_P03_Merryn

Pension tax fiddles could be a rich source of revenue for the Treasury

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.

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."

Recommended

Make sure you max out your pension contributions this year
Pensions

Make sure you max out your pension contributions this year

If you're saving for retirement, make sure that you have used up all their allowances before the tax year ends, and contributed as much to your pensio…
31 Mar 2021
Make sure you don't go over the pensions lifetime allowance
Pensions

Make sure you don't go over the pensions lifetime allowance

Breaching the lifetime allowance for pension savings could prove very costly, says David Prosser.
15 Mar 2021
Women could be compensated for state-pension shortfall
State pensions

Women could be compensated for state-pension shortfall

A government inquiry has said that up to 200,000 women could be owed a collective £1.7bn in compensation, with the average woman being owed £13,500 in…
12 Mar 2021
What is the pensions lifetime allowance and should you be worried about hitting it?
Pensions

What is the pensions lifetime allowance and should you be worried about hitting it?

In his recent Budget the chancellor froze the pensions lifetime allowance at £1,073,100. That may sound like a lot to have in your pot, but you could …
11 Mar 2021

Most Popular

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021
Nuclear power might never be popular – but now looks a good time to invest
Commodities

Nuclear power might never be popular – but now looks a good time to invest

Nuclear power gets a very bad press, but it is the ultimate renewable energy source. Interest in it is perking up again, says John Stepek. Which means…
9 Apr 2021