'Can you pass the salt please, Genghis?'....

There’s not many people, Fred Goodwin aside, that have a good word to say about pensions these days. Ever since Robert Maxwell did a swan dive off his yacht there has been an inherent suspicion of pensions. Further tales of companies going to the wall and taking the pension down with them has made the subject about as welcome as a French kiss at a family reunion.

Genghis Khan suffered a similar fate. By that we mean that he had a bit of a bad reputation, not that he lost his company pension. A bit of conquering here and there and the odd war crime made him the kind of individual that even Cherie Blair would think twice about defending. If Top Trumps ever do a ‘Bad Men From History’ version then it’s a certainty that Genghis will be in there.

To be fair to Genghis, he did have a rather tough upbringing. We’ll not bore you with the details but there were forced marriages, sibling rivalry, banishment, murder and a daring escape from certain death at the hands of a rival tribe. All of which built his reputation and he used this adeptly to unite the nomadic tribes of Asia.

Genghis was extremely progressive for the twelfth century. Firstly he built a very successful army by railing against the convention that army generals should inherit their titles through their bloodline. Instead he came up with a simple concept where the most capable person was given the job. He made it illegal to prosecute somebody without sufficient evidence. He invented paper money as it was easier than lugging lots of metal coins around. He allowed religious freedom in every city that he conquered and his army consisted of Jews, Christians, Muslims, Buddhists, Taoists, Hindus and Animists all fighting together side by side.

But what about the massacres and the Mongol hordes? Well admittedly, when he came to conquer a city he didn’t exactly knock politely at the door but most were taken by siege rather than bloodshed. As his reputation and military might grew, most people gave up without a fight.

After his death his sons took over and made a bit of a mess of things. Bitter infighting split the empire and it was some time until a descendent known as Tamerlane set about rebuilding it. This time however it was recreated through cruelty and brutality as demonstrated when, after a tax revolt in one of his conquered cities, Tamerlane massacred the entire 70,000 population, chopped off their heads and crowbarred the skulls into 28 towers. Just for good measure he then sowed salt into the surrounding farmlands so that nothing could ever grow there again. Admittedly, this was reinforcing a point that had perhaps been outlined adequately by the mass beheadings, but you have to admire his attention to detail.

Over the years the stories and myths surrounding Tamerlane have become entwined with that of Genghis to create the caricature that we know today.

The modern day caricature of Personal Pensions can be just as misleading. Personal Pensions are actually made up of several components. The most important of these is the actual ‘pension’ bit, which provides very generous tax benefits. Think of it like a magic blanket that immediately increases the value of anything held under it by 20% (40% if you are a higher rate taxpayer) and then ensures that any growth that is achieved is also tax efficient. In return for these goodies, all is asked is that you do not access the money until you are age 55 and when you do, that you use 75% of the pot to provide yourself with a regular income. The remaining 25% you can do what you like with, tax free.

So when people are heard to bemoan that ‘their pension is rubbish’, what they normally mean is that the investment funds that they chose, or were sold by the insurance company, have not performed very well.  That however, is not the fault of your pension no more than it is the fault of your garage if your car doesn’t drive very fast. In the modern world you can hold pretty much any investment or asset under your pension blanket so there’s no excuse for not reviewing and changing your underlying investments in the same way as you trade in your car for a more up to date model every few years. In fact if you are driving a different car to the one you had when you last chose or reviewed your pension funds then an alarm bell should be ringing. If the car in question at the time of your last pension review was a MK II Sierra then that deafening noise is an air raid siren.

And so the benefits provided by the pension wrapper get tainted with the poor reputation of the underlying investment in the same way as Genghis is tainted by the sins of his great great grandson Tamerlane. Were it not for that then we would now be teaching the ways of Genghis and how he achieved religious harmony, a free labour market and a robust criminal justice system some 800 years ago.

And for pensions, if we got over the myths and misdirection then we may be more minded to use the pension blanket for lots of wonderful things. For example if you are retiring and in receipt of a lump sum then you may decide to pull the pension blanket over a big portion of said lump sum and claim an additional 20% or 40% tax rebate on it, which could be quite a handsome amount. As long as you have had earnings in the last three years this can be achieved and you don’t even need a pension lump sum; you can use your existing savings. You can even have it all back again as cash, including the enhancement, if you have an annual pension income of £20,000, including the state pension. Oh, and it reduces your potential inheritance tax liability which is a nicer legacy to leave than Tamerlane and his bag of salt did.

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