Polish pension reform: it couldn't happen here, could it?

Hungary did something similar a few years ago when it gave its people the choice between transferring some pension assets to the State or stiff penalties.

Ireland had a levy on private pension funds.

Britain has taken in Royal Mail pension assets and will fund the payments like other public pension schemes.

Proposals for wealth taxes, although focused primarily on property, could include pensions. For example, it wouldn't be too difficult to envisage a temporary 1% asset tax which included pension wealth.

Legislative change is just one of the risks involved in pension saving and has to be factored into considerations.

There are quite a few nuances to understand here. There are many 'flavours' of pension nationalisation. It is of course possible that it can happen in the UK but don't think this means worst case scenario by any means. Sometimes it can even be positive for the pensioner, even if negative for the country's future.

- The part of the polish system that is being nationalised is the state's mandatory scheme. This was funded from private contribution but always under state direction.

Imagine, for example, your National Insurance contributions go into funds run by private pension managers instead of the state treasury. That was sort of what was going on in Poland. This is slightly different to be purely private scheme being nationalised, at least in legal definition if not in economic terms.

- There are elements of this nationalisation that can be opted-out of. In particular, any equity investments. Contributions already built up are staying in the private sector, the question is about new inflows.

- Nationalisation is not typically about stealing a big pot of money. Often the benefits that are promised to scheme members are equal or better than those they had before (with a big caveat).

The motivation often arrives from a quirk of government accounting. Governments aren't required to account on an accrual basis. What that means is that if you pay them $1 today in return for $4 of retirement benefits payable in 40 years, which are worth $2 in today's money, then they will record $1 inflow. Sensible people would say they are losing $1.

So getting all these pension inflows is a big positive for the budget. The fact they will have to pay out on the pension obligations they are accruing now in the future is left as a problem for future governments and taxpayers.

Frankly, most governments are in this situation already. Not making excuses for the Poles; having a fully funded private pension system was a jewel in their financial management crown. But it's helpful to remember the starting point.

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Gordon Brown of course did his own little bit of nationalisation when it came to cutting tax relief of dividend income for pensions.

Anyway, I guess there are two points I'd like to make overall

1) Nationalisation sounds scary but it's the detail that's important.

2) Personally I am very happy to invest in pensions to receive any matching contributions and avoid high tax levels. The reward is huge even considering nationalisation risks.

If I did not receive matching funds and I was in a lower tax band, I'd be less bothered about pensions (but I'd still be keen on saving for retirement!)

hugheskevi wrote: »

For example, it wouldn't be too difficult to envisage a temporary 1% asset tax which included pension wealth..

I find it hard to envisage any tax being temporary...

dunstonh wrote: »

Yes, this damned Napoleonic war just drags on....

Ah now, be fair, you can't blame Napolean for that one -income tax was abolished in 1816. Granted it came back again in 1842 as a "temporary measure" - something to do with free trade and abolishing duties I think. The fact that it never went away again was due to the Crimean War, followed by the Boer War, followed by .....

WobblyDog wrote: »

....I can't imagine the current UK government doing something quite so obvious, although it could be argued that QE is a step in the same direction, given its effect on annuity rates.

Could it happen here?

Royal Mail pension fund?