Private pensions, it turns out, are not the noble saviours of our twilight years we've been sold. According to a rather damning analysis, they're more like a VIP pass for the lucky few, funded partly by the less fortunate. The whole scheme, it seems, allows one generation to hoodwink another, all while the state picks up the tab for the rich.
Here's the kicker: the better off get their pension savings boosted by tax breaks, widening the chasm between rich and poor in retirement. And who's left to foot the bill? Everyone else. John Healey, currently on a treasure hunt for funds to boost defence and social care spending before the autumn budget, should perhaps look at equalising the tax break on pension savings. But don't hold your breath.
Did you know that standard-rate taxpayers get half the subsidy for pension saving that higher-rate taxpayers receive? Probably not, because no one's shouting about it from the rooftops. Official figures from last month show the cost of income tax relief on pensions soaring from £48bn in 2022-23 to £60bn in 2024-25 - a 25% jump in just two years. About £40bn of that goes to higher-rate taxpayers, who enjoy a 40% tax break while the rest get 20%. It's almost as if the system is rigged.
At the heart of the problem is the very concept of retirement, which has evolved from a safety net for the infirm into a 35-year holiday with multiple trips abroad. Someone aged 60 in the UK can expect to live to 84, with a 33% chance of making it to 90, according to the Office for National Statistics. And the more affluent you are, the longer you'll live - because of course that's how it works.
There's now a growth industry of consultants who not only plan the finances of the well-heeled retiree but also design a post-work life for those who feel lost without a corner office. Many will do charity work or mind grandchildren, but too many just want to cocoon in comfort, believing they deserve an entire second lifetime of rest after all that hard graft. Meanwhile, those who actually grafted - the manual workers, the carers - are left with meagre pension pots.
Remember the strikes of the 2010s? Almost every one was about defending the pensions of older workers. Shop stewards, mostly over 50, negotiated with managers of a similar age to secure their gold-plated defined benefit pensions, while younger workers were fobbed off with cheaper, stock market-dependent schemes. Then everyone walked off into the sunset, leaving the next generation to sort out the mess.
This is damaging to the economy. We have experienced and skilled workers choosing to buy a bigger SUV and book a cruise rather than contribute to society in their old age, at least while they're still healthy. In the UK, where pension provision has been largely privatised since Nigel Lawson's 1980s reforms, this is a particular problem.
Global studies show state pensions encourage workers to stay employed longer, either because the payout is too low or because governments have moved the goalposts. But for the better off, a defined benefit scheme with a default retirement age of 60 means there's little incentive to carry on. The Institute for Fiscal Studies confirms that those with the lowest and highest wealth are least likely to be working at 65 - the poor due to ill health and lack of skills, the rich because they've lucked out.
Chief among the winners are public sector workers with guaranteed, salary-linked pensions. They attend retirement parties for colleagues who think it's perfectly reasonable to retire at 60 after 35 years of office life, with a pension lasting another 35, believing the failed economics is someone else's problem.
Professional baby boomers may have escaped with their winnings, but John Healey can still stop gen Xers from pulling off the same heist. There will be complaints, of course. But the judges, doctors, marketing executives, and company directors shouting loudest should ask themselves why 40% of their pension pot should be bankrolled by other taxpayers, most of whom are much poorer than they are.