Budget a 'missed opportunity' for pension challenges

Industry experts have warned that the government has “missed” an opportunity in the recent budget to address concerns around key pension issues.

Yesterday's budget saw the government confirm plans for a consultation on the defined contribution (DC) pension scheme charge cap, alongside plans for a top-up system for net-pay earners from 2024-25.

However, key suggestions from industry wishlists have been omitted, with industry organisations previously calling on the government to use the Budget to target a number of issues, such as the Money Purchase Annual Allowance (MPAA), the Lifetime and Annual Allowance and changes to the Normal Minimum Pension Age (NMPA).

Considering this, SEI client strategy director, Cyprian Njamma, highlighted the Budget announcement as "once again a missed opportunity to simplify the already complex pensions landscape".

"As an industry, we continue to push for greater engagement in retirement savings, yet some aspects are overly complex, resulting in them being inaccessible to many savers," Njamma said.

"Going forward, the government and industry must work collaboratively to do all they can to encourage people to save for retirement, as ultimately, it will be the government that has to pick up the bill in the long run.

In particular, AJ Bell head of retirement policy, Tom Selby, expressed disappointment that the Chancellor had not used the Budget to announce a "much-needed rethink" on the proposed ‘protection’ regime that means some people will be able to retain a ‘NMPA’ of 55 from April 2028 while others will see their minimum access age rise to 57.

“The proposals, if introduced, will inevitably lead to increased activity from scammers, who will attempt to use the confusion caused to fleece people of their hard-earned retirement savings," he warned.

“What’s more, this complexity risks undermining other government initiatives designed to improve the pensions system, including the introduction of new pensions dashboards designed to allow people to see all their retirement pots in one place online.

“Time is fast running out for the Treasury to see sense and, at the very least, pause the planned increase in the minimum access age until a more sensible solution can be figured out.”

This was echoed by Aegon pensions director, Steven Cameron, who noted that there have been "widespread concerns" that the HM Treasury will push ahead with the proposed changes to the NMPA.

"While well meaning, these protections if implemented as proposed could create decades of complexity for pension schemes and many unintended consequences for members, with little real benefit," he said.

“With no mention of this in the Budget papers, we now await the Finance Bill scheduled for 4 November to provide clarity. Unfortunately, it could be a case of a path paved with good intentions leading to significant future complexities.”

Cameron noted that the industry has also been calling for the government to raise the limit of the MPAA, suggesting that the lack of change may be a "blow to those who may have been unknowingly caught out by its little-known rules".

"We remain keen that the limit is increased to £10,000 to give individuals more freedom to get their retirement planning back on track," he continued.

"While these rules were introduced to stop people recycling their pensions tax free cash lump sum, the reality is that it is punishing hard working people.”

Adding to this, Pensions Management Institute (PMI) president, Lesley Alexander, expressed disappointment that the Chancellor had "again missed an opportunity" to make improvements to the existing pension tax system.

"Having reformed the Tapered Annual Allowance in a previous Budget, with the consequence of reducing the number of people caught by it each year, it would have been logical for Mr Sunak simply to have abolished it altogether," she said.

However, Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, suggested that whilst this has been one of the quieter Budgets from a pension perspective, "this is only because we’ve had so many announcements already this year".

She stated: "The pension triple lock was abandoned, albeit for a year, while earned income pensioners earn will be subject to a 1.25 per cent Health and Social Care levy.

"Let’s not forget the freezing of the lifetime allowance for five years which may seem more benign than a cut but over time will bring more and more people into its net.

"Given this backdrop it’s understandable no further pension changes were announced today – pensioners already have much to think about.”

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