As you get older, pensions start to become more interesting. I remember at the age of 23 being persuaded by Mr Lambert (our Founder) that I should start creating a pension fund and was persuaded to contribute £60 per month out of my meagre salary to commence the long haul of building a sufficient fund for retirement one day. Now in my 50s I am very pleased that I was persuaded to commence contributing in my early 20s, but only later in my career could really afford to make significant contributions.
During my working life, I have seen Governments tackle their overspending by trying to raise taxes or reduce reliefs in many and various ways, including a significant reduction in pension contributions tax relief. Less than 10 years ago individuals could contribute up to £255,000 per year and obtain tax relief on their contributions. There was still a lifetime cap, however you could build a fund to a maximum of £1.8 million before relief was denied.
Since 2011, the Government has continuously reduced what can be invested and the amount that can be built up in your pension fund whilst obtaining tax relief.
Now the maximum contribution is limited to £40,000 per annum and if you are a high earner that amount is tapered away to £10,000. In addition the maximum lifetime allowance (that is the fund that you can build) is limited to just over £1 million before tax relief is denied.
On the one hand, the Government wants you to build a sufficient pension fund so that you can live on your own resources but at the same time needs to balance its own books and has therefore decided that tax relief on pension contributions must be restricted.
Timing in this respect has been unfortunate for those who are of a similar age to myself and we must look to other investments to provide an income in retirement, as well as trying to build a respectable sum in our pension fund. I suppose I must be content that at least the pension contribution restrictions have only begun to bite recently. It will be worse for the coming generation in trying to build a pension fund sufficient for a comfortable retirement. They will need to think of other methods of building assets alongside pensions that will provide an income for their hopefully long and enjoyable retirement.
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