The income gap between what the elderly require and what they receive from state pensions remains significant.
It highlights how much younger people, many of whose circumstances bear poor comparison with those who have gone before, should be saving to fund an adequate retirement.
And the comparatively bleak outlook comes amid much speculation that the Chancellor may reduce tax reliefs in his November 22 Budget.
Especially as, following a £5.3 billion jump in 12 months, the Government spent more than £50 billion on pension tax relief last year.
Indeed, the bill is now so large that the entire budget deficit could be wiped out at a stroke.
Currently, a gross pension contribution of £10,000 has the effective net cost to a basic rate tax payer of £8,000, for a higher rate tax payer £6,000, to an individual earning between £100,000 and £122,000 it is £4,000 and to an additional rate tax payer, £5,500.
It makes pension planning a very tax efficient way of saving.
Former chancellor George Osborne dropped plans for tax relief reform in March 2016, due largely to opposition from Conservative MPs. Philip Hammond, after last time getting egg all over his face in trying to increase national insurance contributions for the self-employed, will not go so far as to end tax relief on pension contributions completely.
However, a source close to the Treasury was recently quoted as stating: “The cost of tax relief is only headed in one direction. There is widespread recognition that the trend needs to be reversed.”
Partly this is down to the Government’s improved success at promoting pension saving.
The bill has increased with the arrival of auto-enrolment, and could go up again when minimum contribution rates rise over the next year.
Commenting on the Chancellor’s options, former pensions minister Steve Webb noted: “He’s a few months after a disastrous election, so he’s unlikely to raise the headline rates of income tax, national insurance or VAT. So where’s he going to look for money? Tax relief on pensions.”
Yet the pensions system is far from solid.
Analysis from financial services firm Just, released earlier this month, shows there is a financial gap of £5,177 between the annual spending of retired couples, and that provided by the full state pension. This is based on Office for National Statistics figures which suggest the average retired couple’s spending power is £21,770 a year, while the state pension provides just £16,583.
Just communications director, Stephen Lowe, commented: “This further highlights the importance of people building up workplace and private pension savings to balance the household budget, and of having investments to fall back on.”
In June, think tank the International Longevity Centre – UK, revealed twentysomethings entering the workforce now need to save 18 per cent of their earnings into a pension to enjoy a comfortable retirement. A far cry from the two per cent of salary people are currently saving under auto enrolment, when individual, employer and Government contributions are put together. And still way above the increased auto enrolment savings level of eight per cent of salary scheduled by spring 2019. They should instead aim to put away 20 per cent if they want the same kind of retirement as existing pensioners.
That is because many retiring today still get generous and guaranteed final salary pensions not generally available to most younger workers who also face the heavy cost of getting on the housing ladder and repaying student loans.
Restricting pension tax relief will almost certainly produce howls of protest. Will the Chancellor have the bottle to do it? We shall have to wait and see.