25 May, 2016
UK pensions have been called complicated. Why?
The Bank of England’s chief economist, Andy Haldane, has warned that the UK pension system is too complicated, after admitting that even he finds it confusing.
“I consider myself moderately financially literate, yet I confess to not being able to make the remotest sense of pensions,” he said. As a pension is merely a savings account you pay into and can only withdraw money from when you reach the age of 55, they shouldn’t really be confusing people as high-up as Mr Haldane.
There are lots of rules about what you can and cannot do
In April 2015, the government introduced “pension freedoms” which made the rules about what you can do when you retire a bit simpler. In theory, you can now access all your money as you wish, subject to tax on some of the withdrawals. However, before you get that far there are rules on how much you can put in each year, how much you can invest in overall and what happens to your fund if you die.
Governments keep fiddling with them
The pensions system involves lots of money and lots of people, so successive governments have made changes to it. These are generally geared towards making the system fairer, encouraging people to save and closing unintended consequences of previous changes. The results though are layer upon layer of rules.
As well as complicating the rules, the fact that MPs keep changing the system could be putting off people from engaging with it. After all, what’s the point of learning how it works if it might change again next year?
They involve tax
All pensions involve an element of tax, with different schemes and circumstances often altering the applicable tax rate. If you happen to live abroad, tax becomes even more confusing as you need to assess your commitments with your current country of residence alongside the UK’s. Therefore, understanding tax can be incredibly tricky and make the lives of normal people extremely difficult.
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