From Tax-Efficient Savings to Daylight Robbery: How Successive Governments Have Treated Pensions as Their Piggy Bank

Pensions were once seen as a reliable way to secure your financial future. A disciplined, tax-efficient savings vehicle, they were designed to provide dignity and independence in later life. But over the years, something changed. Successive governments have treated pensions as a bottomless resource—an easy target for systemic tax raids and regulatory meddling. The result? A once-attractive system has been turned into a mechanism for wealth extraction, where those saving for their future are the ones losing out.

The Sales Pitch vs. The Reality

I recently read an article by a pension salesman, painting a glowing picture of pensions and their benefits. It spoke of tax relief, tax-free growth, employer contributions, and the ability to take a quarter of your fund as tax-free cash. All of these sound appealing, and at one time, they were.

But here’s what was left out of the conversation:

• Illiquidity – Your money is locked away until later life, regardless of life events or financial needs.
• Tax on Withdrawal – Draw too fast? You’re heavily taxed. Draw too slow? The government finds new ways to take a cut.
• Divorce, Default, and Fraud Risks – Divorce settlements can strip your pension, employers can default on their obligations, and fraud within the industry is all too common.
• Systemic Tax Raids – Successive governments have made continuous changes that weaken pension benefits.
• The ‘Piggy Bank’ Mentality – Governments have raided pension surpluses, altered tax relief structures, and shifted rules to extract more money from pensioners.

Who Really Profits from Pensions?

Pensions are now a game where the biggest winners are not savers but the financial services industry and the government. Consider this:

• High Charges, Low Returns – Advisers, platforms, product providers, and asset managers can take up to 2.5% per year in charges, while a safe drawdown rate is only around 4%. The industry pockets most of the profit.
• Regulators Turn a Blind Eye – The Financial Conduct Authority (FCA) states it is not a price regulator, allowing excessive charges to continue unchecked.
• Pension Surplus Raids – In defined benefit (DB) schemes, government interventions have weakened solvency tests, increasing the risk of insolvency for pension funds.
• Tax Disincentives – Large pension pots can face tax rates of up to 90%, while small pots can strip savers of means-tested benefits like winter fuel allowance and pension credit.

The Bigger Picture: A System Designed to Fail You

While government tax raids on pensions are already bad enough, what’s even more concerning is their latest move: extending auto-enrolment to lower-paid workers and under-22s while ratcheting up minimum contributions. This ensures more people are locked into a system that benefits the financial industry more than it does them.

And what happens when wealthy taxpayers leave the UK to escape this systemic government theft? Their pensions are handed over to international financial advisers, who in turn charge exorbitant fees and hold pension funds ransom. The cycle of wealth extraction continues.

So, What’s the Solution?

It’s time to challenge the narrative. To stop blindly accepting the sales pitches from those with financial incentives and start asking the right questions. The real key to financial security is education, awareness, and unbiased guidance.

• Earnings Matter More than Savings – Human capital—your ability to earn, grow, and control your income—is the biggest factor in total wealth. Yet, advisers rarely talk about it.
• Consider Alternative Approaches – There are other ways to achieve financial security beyond traditional pensions, including ISAs, property investments, and diversified income streams.
• Seek Impartial Advice – Work with financial planners who are not also financial advisers. Those who have no vested interest in selling a product, but instead offer genuinely independent guidance.

Take Back Control of Your Financial Future

The truth is, the pension system is not designed with your best interests at heart. It’s time to be proactive. Get informed, get savvy, and get empowered. There are professionals who sit on your side of the table, providing financial education and planning without the conflicts of interest that plague the industry.

Don’t let your future be dictated by systemic government raids and an industry that thrives on hidden fees. The power is in your hands—use it wisely.