Giving something back: My ideal product

Also, we would want to encourage long-term saving to try to balance out the “have now, pay later culture” that is pushed at everyone these days. So maybe we put a minimum age limit on when the money can be drawn out. While in the pot, the money can grow tax-free. As a bonus, when the money is eventually drawn out, some of it would not be subject to any tax.

There are, of course, a number of tax-enhanced options around, but most of them are higher risk, such as Enterprise Investment Schemes (EIS), Venture Capital Trusts (VCT), and Seed Enterprise Investment Scheme (SEIS), for example. So my ideal product would allow clients to choose their preferred level of risk — from holding cash, to investing in individual shares, or even supporting their own business.

So, there we are. My ideal product would be one where clients can put some of their hard-earned money into a pot before any tax or national insurance is taken out; it grows tax-free at a level of risk of their choosing, and in later life, some of the funds can be taken out without paying any tax. The rest can then be used to support them when they are not working so hard, and their earnings are lower. I wonder if I could claim intellectual property rights for my idea!

Of course, this may sound remarkably like a personal pension plan, which has been around for decades. Although, based on press comments after the October 2024 Budget, you do wonder if they still exist. Perhaps it’s a bit like Mark Twain said: “The report of my death was an exaggeration”.

In fairness, I have been a bit like a child who’s been given a lollipop and then had it taken away from them before finishing it, since it was announced in the Budget that the “family savings plan”, as I have called it of late, will revert back to being primarily for retirement plans after April 2027. From that point, pensions are expected to be included in the value of an estate for inheritance tax purposes.

The announcement of the changes, effective from April 2027, has inevitably resulted in the question: “Should I still invest in a pension?” Or statements like “I am not putting more money into a pension as they have moved the goal posts.”

The question about whether I should still invest in a pension is a bit like asking your sat nav, “Should I go on the M4?” Mind you, with AI these days, I guess the sat nav may say, “Well, it depends on where you want to go.” Equally, whether you invest in a pension depends on what you want to achieve.

In its simplest terms, financial advice or planning is about plotting a course to achieve a stated objective or objectives. Whether a personal pension should be part of that process s depends on whether it is the most appropriate product to achieve those aims. For the objective of having a financially secure retirement, it is rather difficult to think of anything much better than a pension for a client who is working.

As for moving the goal posts, well, that has happened quite a lot since personal pensions started on 1st July 1988. Sometimes the moves have been good, like the pension freedom changes and no longer having to buy an annuity. Others, like extending the age at which a pension can be drawn, are not so good.

The ability to inherit personal pensions more tax efficiently took effect from 6th April 2015 (good) and is due to be taken away again from 6th April 2027 (not so good). However, the not-so-bad news is that we are not reverting to the old “death tax” rate, as it was called pre-2015, of 55%.

Perhaps one of the most surprising things about personal pensions, as we approach the 40th anniversary of their introduction, is that we have not had a government change their name. After all, the year before personal pensions started, Personal Equity Plans (PEPS) were introduced, and a few years later, Tax-Exempt Special Savings Accounts (TESSAs) followed. Both ended up being renamed and evolved into ISAs.

We have had stakeholder pensions and auto-enrolment pensions, but there has still been pension somewhere in the title. So, with the 2024 Budget changes, general negativity towards pensions, and the various “pension scandals” over the years, it would not be a bad thing in some ways for the name to change.

Of course, these days we seem to use acronyms for everything, so Retirement Accumulation Trust or a Retirement Opportunity Bond as names for the new product – shortened to RAT or ROB – may not inspire the investors of the future.

So perhaps we will just stick with ‘personal pension’ and remind clients that there is little out there to compare with a product which the tax man effectively tops up for you, grows tax free at your chosen level of risk, offers the option to take out 25% tax free later, and helps provide a more comfortable retirement.

Ultimately, as a retirement planning tool, a personal pension is as good as it ever was, just not such as effective as an Inheritance Tax planning tool as of next year.