Holly's Blog: Doing The Guppy
11 July, 2017
Minor existential crisis today after changes in the Cabinet...
Minor existential crisis today after changes in the Cabinet. Although I have made my peace with the fact that policemen look like teenagers, I cannot reconcile myself to the fact that I am older than the Chancellor of the Exchequer :0(
Our new Chancellor has a fairly daunting induction program, which will culminate in delivering a pretty significant Budget in March. The papers have been speculating about changes to pensions tax relief for higher rate tax payers.
Yesterday I emailed one of my better-connected sources who spends a lot of time treading the cold corridors of Westminster and asked him what his take on this was. He emailed back mid-morning to say that:
“On balance I think it’s unlikely he’d just pull the plug on it next month without consultation first; it would be massively destabilising. Not saying it won’t happen, just think it is unlikely.”
It says a lot about politics today that I emailed back early afternoon to ask:
“Does that view still stand now that the ‘he’ in question is a different ‘he’ to when you answered me!?”
The measured reply was that it was a “little more likely now”.
No-one can predict a Budget
No-one ever fully knows what is going to happen with pensions but they are a low-hanging fruit and a potentially easy win for a Chancellor hell-bent on the “Northern Powerhouse”, “Hard Working Families”, “Fixing The Roof” and other Budget Bingo soundbites.
Back in March 2014, George Osborne delivered an unusually exciting Budget which announced ‘Pension Freedoms’ – effectively ripping up the rule book which forced people to buy an annuity (when you trade in your entire pensions savings stash in return for a fixed £ payout every year, for life.) Forget that, he said. It’s up to you what you do with it. Keep it invested. Take it as cash. Fill yer boots.
Most of us had become so bored of uneventful Budgets that no-one was really tuned in or expecting this. I was talking at an industry event and the CEO of Legal & General was speaking after me. The Budget was announced at the same time as he was talking to a room full of analysts. As they gleefully fed back what had just been announced – a catastrophic assault on the annuities market – he did a very good impersonation of a guppy. That day, half of the finance sector Did The Guppy and £3billion was wiped off the total value of the insurance sector on the stock market.
Thanks for the history lesson, but so what?
There is always a chance that Number 11 will fiddle with pensions. So it’s worth taking 10 minutes to think about what you’ve done this tax year.
Pensions tax relief sounds so dull and is so badly explained that lots of us don’t use it as well as we could. If we rename it “Free Money” it suddenly sounds more fun. Basic rate taxpayers essentially get a free £20 for every £80 they pay into a pension. And higher rate taxpayers get double love in the form of this £20 top up AND the chance to reduce their next tax bill by a further £20. Hargreaves Lansdown has a useful pensions tax relief calculator (https://www.hl.co.uk/pensions/tax-relief/calculator) for those of you looking for a fun and romantic thing to surprise your partner with tonight.
As always there is smallprint, limits, caps and other detail to consider – the Government’s largesse only runs so deep. You can read more on our pensions pages. (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/private-pension/)
Final thought. Even if you have no spare cash, do you have any shares or investments wallowing somewhere in a general investment account that you could transfer into a pension? Some providers will let you set up a pension online, with no actual cash, and fund it by selling any investments (with no transaction fees) and shoving the proceeds over into the pension account – then BINGO, you get your freebie tax relief payment on this amount. Read up on the bizarrely named ‘Bed and SIPP’ and don’t forget that any investments you sell this way will trigger capital gains tax and be locked away till you’re at least 55.
Phew. That’s quite enough pensions chat for a Friday. Over and out – have a fun weekend everyone