One of the biggest blights on our pensions for decades has been the scandalous requirement to hand over our nest-egg to some men in suits and hope they’ll pay us a big enough pittance to live on.
The dreaded things we were buying are called annuities, and until Chancellor George Osborne changed the rules, we were obliged to trust our retirement income to one.
The old justification was that if people weren’t forced to put their cash into securing a guaranteed income, they might waste the money and end up paupers. Well, the problems with that thinking are glaring.
Poor investments
For one thing, annuities have always provided a poor rate of income — and in recent years it has been falling. Then there’s your capital. Or rather there isn’t. You see, should you buy an annuity with your hard-earned cash and then kick the bucket the next day, you don’t get a penny back to pass on to your families.
And finally, whose money is it anyway? Nanny-state interference in our private lives is bad enough at best, but when it comes in the form of one of the worst investments ever, it deserves nothing but contempt.
But from 2015, that’s all going to change, and when people retire they’ll be able to do whatever they want with their money! Hurrah!
Do it yourself
So what should we do with our new-found freedom? The answer is simple — ISAs and SIPPs.
A Self-Invested Personal Pension allows you to stash your cash in pension investments of your own choosing, and you get the tax you’ve already paid on the cash refunded into your pot — if you’re a higher-rate taxpayer you have to make the claim yourself, but you should get it.
The tax is actually only deferred, as the eventual income from your pension will be taxed — but you’ll get to use your tax-free allowance each year, and you could benefit from lower tax bands if you were contributing from a higher one. And you can keep the capital there for as long as you like, and pass it on to your loved ones when the time comes.
Then there’s your annual ISA allowance, going up to £15,000 in July, and it can pay to use as much of that as you can. An ISA is different in its treatment of tax, and you can’t reclaim any paid on your contributions — but against that your future profits are protected against tax.
At last!
So, finally, we can take full control of our pension provisions without some incompetent busybodies doing a lousy job of it for us, and keep our money in the best performing long-term investments there are — shares in publicly-traded companies. Thanks, George!
