"Labour stole my money"

barnstar2077

So, I had lunch with my new lady friend and her father today.  Evidently he had been informed of my interest in finances and pensions, as no sooner had we sat down, and before I had even looked at the menu, he launched in to a tirade of how he had previously been robbed.

He said that twelve years ago, when he retired, he started to claim his two private pensions.  He was mainly self employed throughout his working life and said he had been told previously that one of the pensions would be worth £200 a month. As it turns out, it was only worth £40 a month.  Upon mentioning this to his accountant, he was told that Labour had taken money from peoples private pensions, to the tune of billions (and therefore he was never going to vote Labour again! )  He said he had looked into suing the government, but was told that because they had only taken money from the interest (I assume he means growth) that he couldn't do anything.  I asked if he meant he had been hit by some greater form of taxation than he was expecting, but he was adamant that Labour had just taken the money directly from peoples pensions for their own nefarious reasons.

As it seems highly likely this will come up again, if anyone could shed some light on what he might be referring to, I would be most interested, and grateful.  Thanks. 

Thrugelmir

"The chancellor, Gordon Brown, abolished substantial tax relief on dividends that pension funds received on their investments. The financial effect of this tax snatch was colossal. It was estimated that the loss of this tax relief had extracted, in total, over £118 billion of income by 2014" 

anselld

https://www.thisismoney.co.uk/money/pensions/article-1692321/Has-Labour-really-ransacked-our-pensions.html

DoctorStrange

No money was taken directly from anyone's pot, but they stopped the top-ups from the Govt.

Before 1997, if you received say £100 in dividends the Govt would add another £20 in tax relief. 

They stopped that top-up meaning people's pots grew more slowly.

The idea was to encourage companies to reinvest into the business and grow it, rather than just give money been to the shareholders, but the move did accelerate the demise of DB schemes in the private sector.

FatherTireseus

Well, in 1997, Gordon Brown as chancellor removed the dividend tax credit from pension funds.  That was estimated to have cost pension schemes collectively around £5 billion.  But what it meant was that pension schemes weren't allowed to reclaim tax back on dividends received on investments.  Over time the effect was probably magnified as the amount lost in tax couldn't be reinvested and limited future returns and the size of the pension fund.  It hit the amount of income a pension scheme might have expected to receive in the future but it didn't actually reduce the value of the pension fund overall.
As far as I am aware, no government has actually taken money directly out of people's pensions.  Limited the amount of tax relief you can get, yes.  Changed the age at which you can take a pension,  yes. Increased the age at which you can take your state pension,  yes.  But actually taken money out of someone's personal pension? No.

The reason pensions may pay out less than originally estimated are numerous.   It might include people taking them at an earlier age than originally expected.   Or unrealistic growth assumptions used in the original projections.  Or changes to annuity rates, in the days when buying an annuity was about the only option you had.  Or a stock market fall (assuming a defined contribution pension) meaning the value of assets to support the pension is much lower, and hence the annual pension would be lower.

If the gentleman in question took a pension 12 years ago that would be round about 2009, just after the 2008 financial crisis when stock markets around the world had fallen.  That might have more to do with it than 'Labour stole my pension '.  

But my guess is that he's had 12 years to ruminate and fume over the iniquity of it, and anything you say isn't going to make any difference to his sense of injustice, even if he is laying the blame at the wrong door.  If he launched into it as soon as you sat down to dinner it's clearly a sore point but I strongly suspect he'll believe what he wants to believe. 

Thrugelmir

DoctorStrange said:

The idea was to encourage companies to reinvest into the business and grow it, rather than just give money been to the shareholders, but the move did accelerate the demise of DB schemes in the private sector.

The money went to the Treasury and the funding of Brown's grandoise welfare state plans. 

barnstar2077

So, if I had £100 invested with a 5% dividend, then previously I would have been able to make an extra £1 by reclaiming the dividend tax back?

Obviously this would accumulate over years, but I don't see this turning £200 a month in to £40 by itself.  As was suggested above, he must also have had bad timing, and I would suspect he was only putting in a fraction of what we would recommend people put into their pensions these days. 

QrizB

barnstar2077 said:

Obviously this would accumulate over years, but I don't see this turning £40 a month in to £200 by itself.  As was suggested above, he must also have had bad timing, and I would suspect he was only putting in a fraction of what we would recommend people put into their pensions these days. 

Without knowing exactly who told him what, when, and what assumptions they made, I don't think we'll ever unpick this.

I agree that abolition of the tax relief on dividends, in itself, seems an unlikely reason for an 80% fall in his pension.

DoctorStrange

I wonder if the advisor would blame the Government rather than admit poor advice and/or management...

gm0

You can't trust a government of any colour not to fiddle with pensions in search of 10bn here or there. Slick Willie Sutton.

Crimping future DB liabilities (RPI vs CPI fiddling, and LTA on DB as examples as well as Brown and his dividend taxation ruse and the actuarial stuff on SP age indexation.

Thrugelmir

DoctorStrange said:

I wonder if the advisor would blame the Government rather than admit poor advice and/or management...

Sped up the closure of many DB schemes to new members in the years that followed.