Why you should never rely on the state to fund your retirement
The government is pressing ahead with plans to charge inheritance tax on pension savings and has opened the door to increasing the state pension age even sooner.
In Britain there is a widespread, if not strange, belief that the state has a duty to provide and care for us in old age. Our free national health service and benefits system have lulled us into a false sense of security that there is some sort of Big Brother out there to help us in our hour of need.
The problem is that while we are expected to plan for the long term, the rules continue to change with every prime minister, chancellor and pension/homes/health (delete as appropriate) minister at the helm. A cut here; a new tax there; even more policy reviews.
Rule changes made by politicians today can in one fell swoop destroy long-term financial plans that have been carefully put in place.
Take what's happened to those who piled their money into the property market as part of their retirement strategy. For years this was a smart move: landlords could deduct mortgage interest in full from rental income, there was little red tape and capital gains tax (CGT), which applies on additional homes, was not paid on inflationary gains.
But that inflationary CGT relief was made less generous by Gordon Brown in 1998 and then scrapped completely in 2008 by Alistair Darling. Having to pay CGT on a property that has been owned for many years and risen considerably in value seriously reduces the amount you have left for your retirement.
It also hasn't helped that the annual CGT allowance, the profit you can make without being taxed, has been reduced considerably — from £12,300 to £6,000 in April 2023 and again to £3,000 in April 2024.
Figures crunched for The Sunday Times by the estate agency Hamptons showed that the typical landlord is making a loss for the first time since the financial crisis, thanks to higher interest rates and the government's tax crackdown. Owning a second property is no longer a sound retirement strategy.
• Why the golden age of property investing is over
And then we have the changes to the state pension.
The likelihood is that pensioners in the future will get less in real terms than they do today. The pension triple lock is unsustainable and it will have to become less generous — it is a matter of when, not if.
The other lever that the government is likely to pull is changing the state pension age sooner, bringing forward the increase to age 68 from the mid 2040s to the mid 2030s — the earliest it could happen because of the requirement to give ten years' notice.
If you are forced to wait a few years extra before you can claim the state pension, you will either need to work longer or find tens of thousands of pounds more savings to plug the gap — the full new state pension is worth £11,973 this year. It's a lot to find and those more than a decade away from retirement may have to rethink their plans.
Finally, making inheritance tax payable on pensions will also derail many families' plans. From April 2027 pensions will be added to the value of your estate for inheritance tax purposes, although they will remain exempt if left to a spouse or civil partner.
• The inheritance tax raid on pensions will pile misery on grieving families
But many people rely on an inheritance to fund a decent retirement. Having to potentially hand over 40 per cent of that to the taxman could result in some being unable to retire or finding it difficult to make ends meet.
Changes made by short-term governments are wrecking families' long-term financial plans.
It's impossible to have a savings strategy if politicians keep moving the goalposts. Keir Starmer and Rachel Reeves may be long gone by the time you retire, but their actions could shape your future.
It's a reminder to take your own pension savings seriously — and, above all, never trust the state with your retirement.
How are you changing your pension plans to ensure you have enough for retirement? Tell us in the comments below
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
11 minutes ago
- The Independent
Swinney calls for legal referendum if SNP secures majority at Holyrood election
First Minister John Swinney has called for a 'legal referendum recognised by all' on Scottish independence if the SNP secures a majority at the Holyrood elections. Writing in a column in the Daily Record, Mr Swinney said that in the 17 years since the 2008 financial crash 'people feel like they are working harder than ever, but not seeing any improvement in their living standards'. He said the UK economy is 'fundamentally failing to deliver for ordinary people' as well as generating insufficient funding for public services. The SNP leader called for the May 2026 Holyrood elections to be 'a springboard for Scotland taking charge of our own destiny'. He said the situation had got worse since the 2014 referendum, and wrote: 'Think what could have been achieved had we not been forced to spend so much time and money trying to mitigate the ongoing damage of Brexit. 'Or the carnage unleashed by Liz Truss's mini-budget. Or the years of austerity, or Westminster cuts like the Winter Fuel Payment. 'We were told we didn't need independence and we just needed a Labour government – but look how that has turned out.' He wrote that 'independence is the catalyst that will deliver a better future for us all' and that 'with Scotland's energy resources in Scotland's hands, we can reduce bills for consumers and cut costs for businesses'. Mr Swinney revealed he hoped to deliver an SNP majority similar to 2011 in a bid to 'secure a legal referendum recognised by all' and had submitted a motion to the SNP conference proposing that 'we work to deliver a majority of SNP MSPs in the Scottish Parliament to secure that referendum'. He pledged to unveil 'radical policies that we know will transform Scotland' in the coming months, and to 'break the logjam and end this frustration that we all feel'. Mr Swinney added: 'We must be ready to follow the path which we know can lead us to an independent state.' Scottish Conservative deputy leader Rachael Hamilton said: 'John Swinney is like a broken record. In a bid to silence internal critics of his weak leadership, he has thrown diehard nationalists some more red meat on the one issue they all agree on: independence. 'Ordinary Scots are sick and tired of the SNP's obsession with breaking up the UK. 'The public want John Swinney to focus on fixing the damage his government has done in decimating essential services such as schools and the NHS at the same time as making Scotland the highest taxed part of the UK.'
Auto Car
11 minutes ago
- Auto Car
Up to £10k off EVs as makers slash prices to beat new grant
Car makers from Hyundai to Volvo are offering up to £3750 off new electric cars as they wait for the arrival of the UK government's new Electric Car Grant (ECG). Announced earlier this month, the ECG has been introduced as a way of stimulating EV sales in the UK, following a period of stagnation since the previous government's Plug-in Car Grant (PiCG) was pulled in 2022. The new ECG, backed by £650 million of government funding, will yield a discount for qualifying cars of either £1500 or £3750, depending on their environmental impact. To qualify, car manufacturers themselves must meet science-backed emissions targets, while the individual model lines must start at below £37,000 in entry-level trim. Which discount a model receives is determined by how much CO2 is emitted in an EV's production, assessing the energy used in vehicle assembly as well as battery manufacturing. Threshold levels have yet to be made public. While any manufacturer can apply for their car to be included in the scheme, it's thought that, due to this criteria, cars produced in Asian countries, such as China, South Korea and Japan, will not be eligible for the ECG. This would include cars from Hyundai, MG and GMW – all three of which have already launched their own equivalent discounts, likely pre-empting that their cars will be denied access to the ECG. Below are the discounts already being offered by car makers as they await the results of the ECG applications. Alfa Romeo The Alfa Romeo Junior Elettrica – the Italian marque's first EV – can now be had with £1500 off its list price. This leaves the Polish-made compact crossover retailing for £32,405. GWM Chinese firm Great Wall Motor has launched a £3750 grant for the Ora 03 hatchback. The MG 4 EV rival, which was previously named the Funky Cat, now costs just £21,245. Hyundai Hyundai is matching the government's incoming ECG by offering a discount of £3750 on its new Inster hatchback, bringing it down in price to £19,755. The prices of all its other EVs – such as the Ioniq 5, Ioniq 6 and Kona Electric – have been slashed by £1500.
The Independent
11 minutes ago
- The Independent
JD Vance hits the road to sell Trump's ‘Big, Beautiful Bill'
Vice President JD Vance will visit his home state of Ohio on Monday to continue promoting the GOP's sweeping tax-and-border bill. His office confirmed he will be in Canton, Ohio, to discuss the bill's 'benefits for hardworking American families and businesses'. While his aides offered little detail in advance about the visit, NBC News reported that his remarks will take place at a steel plant in Canton, located about 60 miles south of Cleveland. The visit marks Vance's second trip this month to sell the legislative package, filled with a hodgepodge of conservative priorities that Republicans have dubbed the 'One Big, Beautiful Bill' as the vice president becomes its chief promoter on the road. In West Pittston, Pennsylvania, Vance told attendees at an industrial machine shop that they should be able to keep more of their pay in their pockets, highlighting the law's new tax deductions on overtime. Vance also discussed a new children's savings program called Trump Accounts and how the new law promotes energy extraction, while decrying Democrats for opposing the bill that keeps the current tax rates, which would have otherwise expired later this year. The legislation cleared the GOP-controlled Congress by the narrowest of margins, with Vance breaking a tie vote in the Senate for the package that also sets aside hundreds of billions of dollars for Trump's immigration agenda while slashing Medicaid and food stamps. The vice president is also stepping up his public relations blitz on the bill as the White House tries to deflect attention away from the growing controversy over Jeffrey Epstein. The disgraced financier killed himself, authorities say, in a New York jail cell in 2019 as he awaited trial on sex trafficking charges. Trump and his top allies stoked conspiracy theories about Epstein's death before Trump returned to the White House and are now reckoning with the consequences of a Justice Department announcement earlier this month that Epstein did indeed die by suicide and that no further documents about the case would be released. Questions about the case continued to dog Trump in Scotland, where he on Sunday announced a framework trade deal with the European Union. Asked about the timing of the trade announcement and the Epstein case and whether it was correlated, Trump responded: 'You've got to be kidding with that.' 'No, had nothing to do with it,' Trump told the reporter. 'Only you would think that.' The White House sees the new law as a clear political boon, sending Vance to promote it in swing congressional districts that will determine whether Republicans retain their House majority next year. The northeastern Pennsylvania stop is in the district represented by Republican Rep. Rob Bresnahan, a first-term lawmaker who knocked off a six-time Democratic incumbent last fall. On Monday, Vance will be in the district of Democratic Rep. Emilia Sykes, who is a top target for the National Republican Congressional Committee this cycle. Polls before the bill's passage showed that it largely remained unpopular, although the public approves of some individual provisions, such as increasing the child tax credit and allowing workers to deduct more of their tips on taxes.
