9 December 2009

The PBR announced yet another change, with immediate effect, to the limits qualifying for higher rate tax relief – this time qualifying earnings are reduced to £130,000. It is the third change in succession and has done nothing to restore the confidence of savers that they are safe from retrospective action. In reality this measure mainly seeks to close a loophole exposed following a previous attempt to restrict tax relief,  but it also demonstrates ineptitude of policy makers and leaves us all with uncertainty.

It is estimated that more than 13¹ million people in the UK are not saving enough towards their retirement. According to the Pension Protection Fund (PPF), the shortfall in the UK's 7,400 defined-benefit schemes stood at £179.3bn at the end of May. By contrast, one year ago there was a surplus of £51bn. With the Government’s fiscal deficit now increasing at the rate of almost £3 billion a week and estimated to total around £500² billion over the next three years, it is imperative that individuals are encouraged to make proper provision for their retirement.

The long term costs the Government will bear as a result of Britain’s pension hole dwarfs the estimated £5 billion a year the Treasury raised by abolishing the dividend tax credit in 1997.

Jamie Matheson, Executive Chairman, said “Britain’s pension hole is the second biggest fiscal disaster facing Britain over the coming decades after the monstrous deficit. With the urgent action required to bring borrowing under control, now may seem the wrong time to call on the Government to restore the dividend tax credit. However, difficult times call for difficult measures and tackling the huge under provision of pensions is a critical component to restoring the public finances over the longer term. The Tories have hinted that they will restore dividend tax credits when they can – so it would be encouraging to see the Government taking the initiative, rather than tinkering with limits in political gestures.

People need to take stock of their current financial circumstances and start making the necessary provisions for retirement particularly at a time when many are facing having to work beyond the state retirement age of 65. Retirement planning has taken on a whole new meaning since the onset of the recession and its impact on pension funds, savings and investments.”

- ENDS –

For further information please call Brewin Dolphin's Charlotte Black 0845 213 3331 or Richard Harwood 0845 213 4773

¹Association of British Insurers' Report, 'The State of the Nation's Savings', November 2008

²Alistair Darling's estimated Government fiscal deficit over the next 3 years is circa £485 bn. Independent analysts' figures suggest circa £590 bn (marketoracle.co.uk)