The Government has a problem reconciling the need for people to save for their retirement, whilst at the same time not being seen to sanction any accrued benefits which can be passed onto their heirs after death.

This stance has pretty much paralysed any rational thinking on the way forward with pensions, which have now potentially become a liability rather than an asset. Given a choice between an ISA and a pension most people today would opt for the former, whereas with proper policies in place pensions should actually be the route of choice.

Governments must also learn not to regard pension savings as a 'cash cow' to be milked at will to top up their spending shortfall. Furthermore, they are a long term contract between the Individual and the State and the rules should only be changed with sufficient notice in order not to disadvantage savers.

And for goodness sake treat pension savers as adults. After all they have built up a pension in the first place, so bullying them over drawdown & capped GAD rates is really rather insulting. Especially, as the 'reason given' is normally that the Government is looking after them for their own good to prevent them running out of money in their retirement. Well hang on! - these are people who have saved in the first place and not welfare recipients who rely on others and have made no provision for later life.

The facts are really very simple - if you wish people to save then make life easy for them to do so. Governments must stop constantly looking over their shoulder to appease those who believe that passing things onto ones children is a bad thing. They become so obsessed with this hang-up that it has a harmful undue influence in all resulting pension polices, which seems to over-ride common sense.

The acknowledged wisdom is that most of us need to save more into our pensions to have a comfortable retirement and the older one becomes before starting the process the greater the monthly amount needed.

However, the ridiculous thing is that is not necessarily the case and it is perfectly possible to accrue a substantial retirement fund, if only Governments would take their head out of the sand and start thinking constructively.

Personal pensions (SIPP's) are already permitted to invest in commercial property. A simple example of enlightened thinking would be to revise the SIPP borrowing rules and allow them to borrow 60%-70% to purchase commercial property, provided the pension had a deposit of 30%-40%; furthermore, this should apply on a property by property basis.

The figures are simple and the loan on the commercial property would be paid off within around 15 years - entirely from rents receivable. Once paid off the property would then yield between 5%-7.5% per annum in rent, as eithe retirement income or to help fund another purchase

Example: Taking a commercial property worth £100,000, a deposit of £30,000 and a mortgage of £70,000 (70%)

  • Current situation - In order to borrow £70,000 the SIPP must hold assets of £150,000
  • Proposed situation - In order to borrow £70,000 the SIPP would only have to put down a deposit of £30,000

However, it is all about fostering the right climate and encouraging people to save into pensions.

Saying that someone must save £500-£1,000 in order to have a decent pension will simply put people off and the net result will be no saving whatsoever, because they believe that the figures being bandied about are beyond their reach and therefore it is not worth even trying to start saving

The benefits of getting it right are immense - now it only requires political will!

Tags: | Categories: UK Government
Comments are closed