Have your say about pension changes

I have just spent a glorious week on Majorca, walking alone among the daunting limestone mountains that dominate the west of the island. Naturally, it wasn't all sweat and tears. I would always recover from my daily walking exertions by indulging myself in a little local culinary delight - mussels or humongous prawns - washed down with an obligatory half bottle of white Rioja.

For anyone contemplating a late summer or early autumnal break, I thoroughly recommend it. Beautiful, relaxing, therapeutic and chilling.

Que sorpresa, Magaluf - miles away to the south - didn't get a look in although I was tempted at one stage to go and say hello to the British bobbies who are now helping to police this madcap resort.

Holiday reading

Although I spent the balmy Balearic evenings more cerebrally than the hedonists in Magaluf by churning my way through a collection of books (Dear Lupin by former journalist Roger Mortimer being a particular favourite), personal finance was never far from my mind - indeed, as part of my holiday reading, I took with me a couple of documents recently published by HM Treasury on the personal finance subject of the moment - pensions.

Que sorpresa - the documents made for illuminating reading! If you care about your lifetime savings, they are well worth scrutinising - and, if you're up for the challenge, responding to. They are available via Gov.uk.

The first paper is called "Strengthening the incentive to save: a consultation on pensions tax relief" (I referred to it in last month's column, although not by name). The title is a little misleading because the 24-page document is not about encouraging more of us to save. It's all to do with whether the current tax breaks available on pension contributions are sustainable.

Reading between the lines, it's quite obvious what HM Treasury and its phalanx of officials already think - that tax relief is a luxury the nation can no longer afford. Indeed, if it wasn't thinking this way, it wouldn't have launched the consultation.

The numbers speak for themselves. In the tax year ending April 2014, the net cost of pension tax relief (cost of tax relief minus all tax collected on pensions in payment) was a staggering £21.2 billion.

Pensions to clone ISAs

It doesn't take a mathematician to work out that by removing the tax break, the positive impact on the government's finances would be huge and, crucially, immediate. You can almost see George Osborne, Chancellor of the Exchequer, salivating at the prospect of introducing the change.    

Of course, there would be a quid pro quo offered if upfront tax relief is removed. When you come to take your pension from age 55, you would not be required to pay tax on any withdrawals or income as is the case now. In other words, pensions will become clones of Individual Savings Accounts (ISAs), where contributions are already funded from net income but withdrawals are free from the clutches of the taxman. Such a change is likely to anger some savers, probably most. If you sit in this camp, I urge you to respond to the consultation and vent your spleen. The deadline is the end of September. Of course, if you believe reform is for the better, have your say too. Don't sit on your hands.

The second paper, entitled "Pension transfers and early exit charges", looks at the problems people are currently experiencing in making withdrawals from their pensions under the new freedom rules introduced in April this year. Some wanting access to their pension are being inhibited by steep exit charges. Others, considering transferring benefits accumulated under a defined benefit scheme to a more flexible defined contribution plan, are being thwarted by the requirement to pay for expensive financial advice. HM Treasury is keen to see these hurdles removed.

 If you have a view on these issues - or, even better, you have faced obstacles when accessing your pension - let HM Treasury know. You have until 21 October to have your say. Pensions are changing - for better and for worse - and your voice may count for little at the end of the day. But it's better to have your say than stand by and let government ministers and mandarins have their wicked pensions way. So shout out loud. You never know, someone in the corridors of power may well take note. Que sorpresa!

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On 5 Sept 2015 I had my 75 th birthday only to be told by Standard Life Assurance that, even though I had never, ever taken any income or the 25% tax free element within my SIPP pension pot of some £70,000, it was now too late to take anything at all without being liable to tax on everything withdrawn of 45% - yes 45%. Thus even the tax free 25% that would have previously been available would also be taxed at 45%. Can this possibly be true? If it is, my planning against the possibility of winding up in nursing home at some time has been for seriously compromised to the benefit of HMRC rather than myself as my potential future income is reduced to the normal State Pension, a small annuity from RNPFN of less than £2,000 plus tiny sums from ISA income and equity dividends. I just cannot believe this could happen and that an IFA would let me fall into this trap withour warning me. So much for IFAs!!!