What to expect for pensions at the last Spring Budget

Written by Natalie Tuck

It has been noted that with preparations to trigger Article 50, commencing Brexit negotiations, the Budget may be a low-key affair but there are plenty of potential pensions topics to be aware of.

Pension tax relief

At the last Budget, there was huge anticipation of a shake-up to pensions tax relief following a consultation, however, this never made the final cut with many stating former Chancellor George Osborne was playing it safe before the EU Referendum.

However, AJ Bell senior analyst Tom Selby believes that it could be back on the cards this year: "It is not inconceivable Philip Hammond will return to these reforms in the Budget – particularly as pension tax relief is expected to cost the Exchequer £38.2bn in 2015/16. With the NHS in crisis, the Chancellor may be tempted to raid pensions in order to beef up healthcare."

In addition, Hargreaves Lansdown head of retirement policy Tom McPhail said pensions taxation is still “ripe for reform” and investors should work on the assumption that it is simply a matter of time before the government revisits the issue”.

Aegon pensions director Steven Cameron added that he hopes the Chancellor will “leave the fundamentals of pension tax relief alone”.

“Any substantive change to pensions tax relief would be in direct conflict to the government’s aim of finding solutions to make defined benefit schemes more sustainable and affordable,” he said.

However, Royal London director of policy and former Pensions Minister Steve Webb thinks any changes are more likely to happen in Autumn rather than Spring, with the annual allowance most at risk.

"The Chancellor may justify this on the basis that the ISA limit is rising to £20,000 from 2017/18 so there is less need for people to put up to £40,000 into a pension. In general, the pro-ISA rhetoric is likely to continue, whilst tax breaks for pensions will continue to get close scrutiny."

Money Purchase Annual Allowance (MPAA)

At the last Autumn Statement Chancellor Philip Hammond announced a consultation to reduce the Money Purchase Annual Allowance, something which was not welcomed by the industry.

Webb stated that he hopes the Chancellor has listened to the widespread concerns that this could penalise people looking to re-build savings later in life. "Without more evidence that there is a problem, there is still time for the government to think again."

Nucleus product technical manager Rachey Vahey also hopes the government has thought again on reducing the MPAA, and instead considers other actions, such as tightening the pension recycling rules to better focus on preventing people from abusing the tax system

Lifetime ISA

On the subject of the Lifetime ISA Blick Rothenburg partner Genevieve Moore would like to see the product extended to those over the age of 40. She would also like to see the time someone can save into a LISA extended to retirement age, rather than 50.

State pension triple-lock

With the recent report from the Work and Pensions Committee the future of the triple lock on the state pension is in jeopardy. Labour has said that if elected in 2020 then they will keep the policy, however, the Conservative government have yet to confirm anything about the policy beyond the next parliament.

"The government is very unlikely to make any decision on the triple lock. They have already said this will form part of their next overall spending review. The government is committed to the triple lock until 2020 – a promise they made less than two years ago – and the cost of the triple lock is factored in to their baseline spending plans," Webb said.

Meanwhile Selby added: “While its future may appear bleak, it’s worth remembering the triple-lock was introduced to help recover some of the value lost after Margaret Thatcher controversially scrapped the earnings link in 1980. However, it was never meant to be a permanent measure and costs the Exchequer billions. The government will be wary about hitting pensioners ahead of the 2020 election - and breaking its manifesto promise in the process - but it would be no surprise to see the Chancellor signal the end of the triple-lock in his Budget speech."

State pension age

While we wait for the report on the state pension age from Sir John Cridland, we hear stories of the state pension rising into the early to mid-seventies. There has even been a proposal from Centre for Policy Studies’ Michael Johnson that we should not receive a state pension until the age of 80.

“The Cridland review into the state pension age is due to report this year, so the Chancellor may want to ‘roll the pitch’ by signalling the government’s preferred direction of travel for future increases. Given the more flexible approach people are taking to retirement today, the government could look at allowing people to take their state pension earlier, with the amount they receive adjusted so it is cost neutral for the Exchequer,” Selby stated.

“This would be a positive development and in line with the pension freedoms where people have greater control and choice around how and when they draw their retirement income. However, immediate spending concerns may well see the Treasury dodge this reform – which would increase short term cashflow strains – at least for the time being.”

Cameron also highlighted his wishes for more flexibility on the state pension age: “The Cridland Review, which is due to report any time now, should recommend that the Chancellor makes the state pension accessible from earlier, as well as later, ages with the pay-out altered accordingly. Everyone approaching retirement has different needs and circumstances and these must be accommodated.”

Cross-party pensions group

Vahey would like to see a cross-political group work together to develop a “long-term vision for UK pension provision”.

“Putting an end to constant speculation will help people understand the benefits of using pensions to save. This is crucial at a time when automatic enrolment is coming of age, and minimum contribution limits are increasing to their full level. People need to have confidence the current rules will stick without significant change or limits being downgraded. The constant tinkering with pension legislation – and the rumours of change – only puts people off saving for their later life.”

In addition, Dentons Pensions Management director of technical services Martin Tilley added: “What I’d like to see is the announcement of a cross party pensions commission which can call upon the expertise of the financial services industry and form a clear long term path. What we don’t need is short term tinkering with the current process which does nothing to raise the confidence of saving for retirement amongst the consumer.”

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