The erosion of the lifetime allowance, the cuts in the annual allowance, the slashing of the Money Purchase Annual Allowance and so on have all made life much more difficult for pension savers.
These cuts to pension allowances seem to have been based on a Treasury view that somehow higher earners are ‘getting away’ with dodging tax by using pensions as a front. I suspect in most cases these individuals were just doing what their planners recommended and taking sensible steps to save for the future.
With this in mind, it was welcome this week to see the new Cabinet finally addressing what has been one of the biggest pension blunders in recent years, the decision by former Chancellor George Osborne in 2016 to introduce a tapered annual allowance to cut tax relief on pensions for higher earners.
A bit like his ‘pasty tax’, this change by Mr Osborne shortly before he left office, had unintended consequences.
Three years later high earning clinicians working for the NHS are retiring in droves or turning down overtime, something which keeps the NHS going, because they are penalised for earning too much.
To give Mr Osborne the benefit of the doubt he could perhaps have only guessed at the unintended consequences of his tax change but coming on top of a long-term swathe of pension tax relief cuts it was clearly the final straw for many.
New Chancellor Sajid Javid and Health and Social Care Secretary Matt Hancock have launched an immediate review which should, we are told, lead to major reform by the start of the next tax year. That may be too late for many but it is at least an acceptance that something is wrong and change is needed.
It is, however, just a small part of the problem. The government must move towards undoing some of the damaging pension tax relief cuts over the past decade. It must stop treating anyone fortunate enough to be paying higher rate tax as a tax-dodging leper to be punished at every Budget.
It can do this by returning the lifetime allowance, currently £1,055,000 to at least the level it was in 2011/12 of £1.8m. A lifetime allowance of £2m would be better to allow for inflation.
The announcements on reform of the tapered annual allowance are a positive step but must be widened to include all higher earners. Restricting any changes to senior NHS staff would be difficult to achieve and a backward step.
The government has an opportunity now to reverse years of damaging change - it should seize the nettle.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with 30 years experience. This topical comment on the Financial Planning news appears most weeks.