Making a clear position on pensions.

On the other hand, the government desperately needs the general public to take more responsibility for ensuring they have saved sufficient through their working lives. The message from government is we all need to do more ourselves to ensure that we do not have a penurious old age.

The driver for this, from the government’s perspective, is that the state pension is paid out of current taxes.

There is no dedicated pension savings pool the government can draw on.

So, with people living longer in retirement, and with the balance of those in work to those on pension getting more and more out of kilter, the state pension is an ever growing burden on government.

The government’s solution has been to adopt a twin track approach. Autoenrolment into company pension schemes has brought hundreds of thousands of people into the pensions net. In the process auto-enrolment has begun the process of accustoming large numbers of people to the idea of saving for the long term.

However, at the same time as it has boosted overall savings with autoenrolment, the government has made pension savings less attractive for higher paid people. Many of these higher paid executives are also directors who have some influence over their company’s reward policies.

So, the fear in the pensions industry is that over the next few years companies could become less interested in offering anything more by way of pensions than the law forces them to.

The thinking here is, if directors see pensions as increasingly irrelevant to them, they may see pensions as a less important element in their overall corporate reward strategies.

If one looks back to 2006 when the annual cap on pension savings was first introduced, it came in at £215,000.

The idea at the time was that it would increase in stages, with the annual allowance set to reach £225,000 by 2010. Compare that to today’s annual allowance of £40,000 and it becomes clear just how heavily pension savings have been restricted for the wealthy.

For ordinary earners, of course, the annual limit of £40,000 is far higher than they could hope to save. This is one of the reasons why Kirsty Lister, financial planning associate at Chiene & Tait Financial Planning, believes the vast majority of people still see pensions as an attractive long-term savings vehicle.

“There is no doubt that pensions are becoming more restricted, but they should still be the first port of call for any long-term savings,” she says.

On the plus side, Lister points out that there has been no further tightening of the relief regime on pension contributions since the 2015/2016 tax year.

“The government is too involved in Brexit right now to have any spare Parliamentary time to consider changes to the pensions regime.

“So at least we can say that there is almost no chance of any further rule changes in the near future,” she says.

She points out that even Chiene & Tait’s higher paid clients are still very keen to save into their pensions. One of the chief attractions for them is that pensions are now a very good inter-generational savings vehicle.

The pension pot can be passed to the next generation without being subject to inheritance tax (IHT). Of itself this represents a 40% gain for whoever inherits the pot. By comparison, sums saved in ISAs are taxed on the death of the holder.

At Chiene Tait Financial Planning we look at things differently. We provide trusted and effective advice to individuals, companies and charities. Our team like to think outside the normal scope of financial planning and we strive to provide practical solutions to what can initially appear to be complex matters.

The exception here is where they are passed on to the surviving spouse as an inheritance ISA.

However, on the death of the surviving spouse any remaining ISAs fall into the estate and are subject to 40% IHT.

This point has been thoroughly grasped by wealth managers and financial advisors, and it has done much to keep higher paid people interested in pensions.

“They can see their pension pot as a savings for their kids, particularly if they have other sources of income they can draw on in retirement.

“Running down ISAs to protect the pension pot so it can be passed on to the children, is clearly a very sound strategy for a retired couple,” Lister says.

“What we see from long experience with clients is that no one ever says they saved too much for their retirement years,” she notes.

However, people still need to plan carefully when they are approaching retirement.

One of the major reasons for this is that people’s spending across their retirement years tends not to be constant. The heaviest spending tends to be in the first phase of retirement, when people on pension tend to do a good deal of travelling.

By the time they reach their 80s, however, many of them will have either had enough of travel or will have become too frail. Expenditure at this point can be significantly less than during the opening years. Then, in the final years of life, medical expenses tend to rise and expenditure once again increases. All of this needs to be taken into account when planning for a long retirement.

For more information please visit www.chienefinancial.co.uk

This article appeared in The Herald on the 28th February 2019 in The Herald's editorial review of Wealth Management.