Pep up pensions: give more tax relief to those who need it

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The Independent Online

In the glamour stakes, let's face it, pensions come somewhere below the Toilet Duck. Not only are they boring but once you put money into one, you can't get your hands on it again for an eternity – and all the time your little pot of cash is at the mercy of the stock market and some overpaid chinless wonder posing as a fund manager.

So it was no surprise when the Halifax revealed last week that only around half of us are currently paying into a pension. And the credit crunch has made things worse as thousands of hard-pressed consumers choose to concentrate on the here and now.

Four years since Lord Turner's Pensions Commission warned that a huge swathe of people face penury in old age, retirement saving has now reached vanishing point – just when life expectancy is heading above 80.

And what is being done? Well, the Government will say it has a plan. Under the personal accounts system, set to be introduced in a few years, workers who are not members of a company pension plan will be enrolled automatically into a nationwide scheme.

But unless the Government also sorts out how personal accounts will interact with means-tested benefits, such as the pensions credit, this will be a colossal waste of time as putting in money could bar people from claiming state benefits. In effect, those who save will be no better off than those who do nothing – and that is mad.

Beyond personal accounts, there is no plan to get us to save more. Politicians, particularly Labour ones, think the issue is largely put to bed for a generation because the Pensions Commission set out how the state pension could be afforded in the future: put simply, we wait longer to collect. But they are wrong. We are a nation headed for a pitifully poor dotage somewhere around the middle of the century. And although they're flawed, the only vehicle we have to get people setting more cash aside is private pensions. We need to make the idea of saving appealing again.

One idea I favour is to equalise relief on pension contributions. At present, top-rate taxpayers get 40p for each pound they save, while basic-rate payers (who need more of a leg-up) have to make do with a miserly 20p. Around four-fifths of the money given in tax relief on pensions goes to higher-rate payers. Correcting this inequality and introducing an across-the-board relief on contributions of, say, 28p in the pound would boost the appeal of pensions for millions of low-income and middle-income Britons at a stroke.

In response, though, politicians say they have to keep the higher-rate relief because they fear that if our top bosses lose their little pot of gold then they will no longer see the point of pensions and close down their employee schemes.

I'm not even going to dignify that excuse other than to say it's very convenient for MPs, who have one of the most lucrative pension schemes on the planet, to remain in favour of a system under which higher-rate tax payers, such as themselves, are given extra lolly by the Exchequer.

Voucher mayhem

I have never been a fan of giving vouchers as presents. Frankly, they are a bit of a scam. A large percentage never get used as people forget about them, and retailers tend not to offer any change, which is blatant profiteering.

Last week, Zavvi's administrator confirmed that vouchers bought in the DVD and music store wouldn't be honoured, for the time being at least. Many of these will have been bought by unsuspecting parents, and now they are practically worthless. Instead, voucher holders may have to join the lengthy queue of Zavvi creditors for a chance to get some of their money back, even though the goods are in store and those vouchers could be redeemed right now.

In future, consumers may approach vouchers as they do Christmas savings clubs in the wake of the collapse of Farepak – with justified scepticism.

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