Oddly, for a party founded on the interests of workers and backed by trades unions, Labour policies have been terrible for pensions.
It goes back a long way. Gordon Brown’s move to axe tax relief on dividends in pension funds back in 1997 was one of the biggest acts of licensed larceny ever to be committed by an occupant of No.11.
It took billions of pounds out of workers’ pension pots and was a major factor in the demise of Britain’s gold-plated final salary retirement plans.
Now the party has said it will re-instate the Lifetime Allowance, which the Conservatives are in the process of abolishing.
Such a move by Labour would result in a super-tax on retirement pots over the limit, currently a smidgen more than £1m.
Dynamic duo: Labour pair Rachel Reeves and Keir Starmer are set to punish pensioners
That sounds a lot, but plenty of moderately well-off professionals accrue this much over a working life.
It doesn’t equate to Rockefeller-style retirement: maybe around £40,000 a year. Restoring the limit would punish people for having invested wisely, and incentivise them to give up work earlier than they might wish, or than is good for society.
The Labour view, however, seems to be that pension pots are the fruits of privilege, ripe for taxation. In reality, pensions are deferred pay, that workers have saved.
Apart from the vindictiveness, re-instating the limit would be complex and counter-productive.
Many of those affected would give up work to avoid the punitive tax surcharge so it is unlikely to be a revenue-raiser.
A futile gesture then. Worse, one that sends out exactly the wrong message at a time when the country needs to harness its pension power. As my colleague Hamish McRae argued in the Mail on Sunday yesterday, politicians would do better to try to put right the damage of the past than imposing new tax penalties.
Reversing Brown’s raid and restoring dividend credits would help stop the rot in the City, which is in danger of losing its status as a world-class financial centre.
In 1997, when Brown launched his smash and grab, pension funds and other large UK investors owned nearly half of UK shares. They now hold just 4 per cent: go figure.
The real problem with pensions is not that a few people have accumulated a pot worth more than £1m so must be penalised. It is that so many people have not accumulated anywhere near enough. ‘Generation X’ – the middle-aged cohort born between 1964 and 1980 – are in a nasty squeeze.
Most – unless they work in the public sector – were too late to benefit from ‘gold-plated’ final salary pensions, which guaranteed a retirement income for life. Large numbers also missed out on years of auto-enrolment, which only arrived in 2012.
These mid-lifers, the eldest of whom are approaching 60, did not benefit to the same extent from the housing market as their Boomer predecessors. Many are supporting children at university and caring for elderly relatives.
Catherine Foot – director of Phoenix Insights – says up to 18m people are not financially prepared for later life. A disproportionate amount of them are women. Pension saving has been pushed down the list of priorities.
All politicians should be encouraging more pensions saving, especially in mid-life. Threatening savers with a tax on pension prudence, as Labour is doing, does not help. It only makes matters worse by adding to the risk, uncertainty and complexity that bedevil retirement savings.
