I’m 31 and pay thousands into my pension: taxing my contributions could be the last straw
The Chancellor’s threat of a a two per cent national insurance tax on salary sacrifice contributions above £2,000 is deeply unfair, says Martin Kimber
People tend to look at me like I’ve just admitted to collecting antique Victorian dolls when I tell them I sacrifice 15 per cent of my salary into a pension.
However, my friends have recently become accustomed to my quirky obsession, and are no longer surprised when I go yet another year without a foreign holiday, so as to save more for retirement.
I do this for several reasons.
Firstly, artificially lowering my gross pay reduces my overall tax bill: someone my age or younger, earning around £40,000 a year, will immediately save 37p on every pound in levies. That’s a hefty, instant return on investment.
That’s after avoiding paying income tax, national insurance and student loan repayments.
I was born in June 1994, meaning my year group was the first to be caught out by Nick Clegg’s heart-felt, ironclad promise not to raise tuition fees.
Secondly, the state pension is becoming increasingly unsustainable. Without some form of means-testing, the treasury will eventually become a Ponzi scheme retirement fund with a state attached.
So it’s unlikely I’ll ever see free government benefits in my old age – and why should I?
Saving for retirement is moral
Saving for my own retirement is the moral thing to do. Why burden the already over-stretched taxpayer when I’m perfectly capable of saving for my own retirement?
That’s why the kite the government flew last week, signalling a two per cent national insurance tax on salary sacrifice contributions above £2,000, had me frothing at the mouth.
Legally hiding a pot of money from the government is the most effective and egalitarian way for the lower, middle and upper-middle classes to build wealth for themselves and their children.
A healthy private pension also acts as “F*** you money”, a phrase recently popularised by personal finance influencers. Should I be fed up with work in 30 years’ time, for whatever reason, I want to be able to say “F*** you” and walk away.
A pension is also probably the only way to get on the front foot of inflation, the UK’s being the highest in the G7 (which has eroded the value of our money by 24 per cent in just the last four years alone), and a meteoric rise in rents after the Conservative government taxed and regulated thousands of private landlords out of the market.
A lot has also been said over the weekend about this proposed change only hitting private sector workers on defined contribution schemes (unless you work for IBM, which reopened its DB plan two years ago), leaving public sector defined benefit schemes untouched.
I do not begrudge public sector employees their pensions. They do long hours for often uncompetitive salaries, with only the promise of a comfortable retirement as a financial carrot.
But this policy smacks of unfairness, an odour the British public easily detects and vehemently detests.
Young people have been brainwashed for decades, being told buying a property is the ticket to financial freedom, unaware that the houses they can’t afford, likely won’t rocket in value like they did for our post-war parents.
Meanwhile means-testing old age benefits is met with choruses of ‘I paid in my whole life’ by petulant, asset-rich multi-millionaire boomers – unaware that at no point in their lives have they paid into a state pension pot with their name on it.
Assuming both have paid national insurance for the required time period, David Beckham is entitled to the same state pension as someone who’s worked in retail their whole life. That’s quite simply insane.
How can young people be expected to enter into the social contract of capitalism, the least-worst system that’s yet been tried, if we are not permitted to accumulate capital?
How can young people be expected to enter into the social contract of capitalism, the least-worst system that’s yet been tried, if we are not permitted to accumulate capital?
Our parents were given the opportunity to forego luxuries and holidays in return for a home to call their own – we deserve the same chance of building a future.
Sir Martin Sorrell, of WPP fame, recently told me his biggest fear around the UK’s punitive tax regime wasn’t of a billionaire exodus, but of a brain drain of our youngest and brightest minds – and I think he’s completely right.
Here’s hoping Morning Wire opens an office in Dubai.
Martin Kimber is head of video and audio at Morning Wire