For Gen Y pensions are far less of a hot topic than they should be
18 October 2015
Matthew Simpson - Business
Analyst at Dunstan Thomas
The incentives to invest has always for me been three
fold, and as illustrated by the comparison of EET v TEE
in the recent article published through this website,
the relief on contributions, exemption from tax on
investment growth and the PCLS have been stable
incentives since A-Day. Yet in the face of year on year
changes and reforms to pension regulations I’ve always
felt that this stability of pension schema is integral
as it allows a partnering approach to targeting of long
term financial undertakings.
Specific context for most 20/30 somethings, would be the hard sought and not insignificant endeavour of achieving a mortgage arrangement as a first time buyer. Or, through persistence and often significant monthly financial commitment, a larger arrangement against a longer term family home, where the promise of a PCLS return post 55 allows for the projection of mortgage repayments in an affordable manner up to and nearing the date of retirement, where a realistic ability to clear out the last five years may be afforded by such a lump sum.
Short/mid-term lessening of strain on treasury coffers seems to be a trade off with the original promise of incentivised accumulation profiles for all those post-baby-boom generations that are suffering due to the short sightedness of old, where pensions were promised if only a minimum wage was earned by one of two, and mortgages were achieved by couples because he worked.
Braver, more polite, and perhaps more endearing generations may have preceded this one. But financially or socio-economically far sighted, it seems to me they were not. But that is perhaps more an aside into the breadths of human nature.
Add to the mix the staggering recent introduction of Flexible Access, and the possibility of disinvestment followed shortly by cap-in-handedness due to disinvestment decisions by less than savvy investors, again suggests to this Gen Y-er that the short term tax income is being preferred versus the consistent beneficial offerings for the future retirees. Is it too simplistic to point out that with higher tax relief bills comes higher income tax intake? Lest we forget that to make these payments into pension schemes which then earn relief, individual investors must first earn that money and pay income tax on virtually all of it?!
Clearly the tax relief hike in the last year is a traumatic occurrence for the treasury, and it is likely to only get worse. But the dependency upon the welfare system generally by underfunded retired persons in the next ten, twenty, thirty years or further can only be expected to be as heavy, and critically, more varied. Such variety of issues will clearly lead to excess cost in dealing with these problems as more options presented by more sitting government treasurers generate administrative tail chasing soaking up what funding pots still exist.
Pensions savings are as intertwined with an individual’s financial landscape as any short term salary earning, bill paying, finance arranged, credit interest paying school fee saving investment goals. Revisions to the profile of pension parameters should not be viewed in isolation, by individuals or policy setters.
All that said however, one product type to rule them all…? Well that would make mobile application interaction with my financial products that much easier, so why not tie my pension savings into the tax incentivised position of an ISA…? While we’re at it can we link to my mortgage, life and protection plans, my car insurance options and any cash back on purchases?! In fact, why can’t I redirect the ‘money off next shop’ values I garner from Sainsbury’s.
Working in the financial industry I am actually rather keenly aware that the avoidance of cynicism of the pensions market, and continued pensions saving, is crucial to my financial wellbeing. But in terms of the pension options that will be available to me…? Who knows…? If there is still a minimum retirement benefits age anywhere near 55 in the twenty years from now, I have no doubt that the options available will be starkly different to anything we see in the next 5 years! It seems pension policy is only an effect for the T-minus 5 years to retirement generation.
In short my opinion is definitely that saving and accumulation has never been more important, if only because of wavering confidence in any form of stability. The potential for an overwhelming apathy spiral has never been more imminent! ISAs are indeed better understood, and their consideration far more entertained, if only due to the fewer lavender rinse connotations of the acronym name, and the saleability of something that requires a video gamers 30-second-pitch attention span to understand. You don’t see billboard adverts for pensions in the same way that ISA ads are so highly high street-able. But working in the industry aside, what will be with the pensions market will be, and unless you are shortly to retire or looking to decumulate, then much variance has little bearing to the general appreciation beyond muddying already muddy waters!
Contact Matt at firstname.lastname@example.org