Industry outlines Spring Statement 2022 'wish list'

Industry experts have outlined their hopes for the government's upcoming Spring Statement, with changes to the money purchase annual allowance (MPAA), state pension rates, and the advice/guidance boundary high on the pension sector's 'wish list'.

In particular, there have been a number of calls for the MPAA, pensions lifetime allowance, and lifetime ISA (Lisa) limits and penalties to be reconsidered in light of the ongoing cost of living crisis.

Hargreaves Lansdown senior pensions analyst, Helen Morrissey, noted that whilst there may be more pressing problems in the world, progress on key personal finance issues is “well overdue, and making changes now will improve life for people in the future”.

Morrissey explained that whilst the MPAA is meant to stop ‘recycling’, where people access their pension and re-invest contributions for another round of tax relief, it adds “needless complexity" and can prevent savers topping up their pension if they’ve been forced to dip into it.

In light of this, she suggested that the government replace the MPAA with anti-recycling rules, which only kick in when someone has accessed their pension with the express intent to recycle the cash.

"If there’s no intent to recycle, people can rebuild their pension savings and therefore their financial resilience,” she said.

This was echoed by AJ Bell head of personal finance, Laura Suter, who noted that, with the cost of living soaring and wages failing to keep up, many savers will reluctantly dip into their Lisa or pension savings just to pay their bills.

She suggested that scrapping the MPAA would make it easier for millions of people to use their savings to keep afloat during the crisis, whilst changes to Lisa penalties could "give people a bit of breathing room to dip into their savings and not face the punitive exit fee".

"In tough times it is likely more people will turn to their retirement pot to cover a shortfall and in these circumstances it feels unfair to handicap their ability to rebuild their retirement savings once the cost of living crisis has lifted," she continued.

Adding to this, Aegon pensions director, Steven Cameron, suggested that the government could revisit the freezing of the pensions lifetime allowance, highlighting the spring 2021 decision to freeze the allowance at £1,073,100 until 2025/26 as a “stealth tax”.

“By not increasing this in line with inflation, it is reducing the amount people can save in pensions in ‘real’ terms without facing an additional tax charge,” he explained.

"We’d welcome Rishi revisiting this decision in light of current rocketing inflation, ideally by unfreezing the limit earlier than planned and returning to inflation-based increases.”   

However, Suter suggested that the Treasury may set its sights on the lifetime and annual pension allowance if its looking to save money on pension tax relief, warning that "a dramatic pension tax relief raid would come with huge practical challenges and political risks".

Whilst she acknowledged that it "seems unlikely" that the lifetime allowance will be reduced given it has already been frozen, she highlighted the annual allowance as "the simplest lever to pull".

Suter explained that lowering the annual allowance from its current £40,000 to £30,000 or even £20,000, in line with the ISA allowance, would raise revenue for the Exchequer while only affecting those who make very large pension contributions.

Additional support for state pensioners was also highlighted as a key consideration for the upcoming Spring Statement, as Suter warned that pensioners relying on the state pension are going to be hit hard in the current cost of living crisis, particularly as they are getting a below-inflation increase in their pension payments of 3.1 per cent.

She explained that whilst the government scrapped the triple lock this year amid the impact of the pandemic on wage figures, it could revise the inflation figure it uses for the state pension uplift, to better reflect the current inflationary environment.

"Interestingly, the latest inflation figures are released on the same morning as the Spring Statement, raising questions about whether an alternative measure of inflation will be generated to base any state pension increase on," she added.

These concerns were shared by Cameron, who added: “We’ll be on the lookout for any temporary targeted support the Chancellor may grant. We’d welcome the Chancellor committing to a reinstatement of the earnings component in the triple lock from next April.”

In addition to this, Cameron suggested that there could be changes around guidance and advice, stating that there are “growing signs that the government is ramping up efforts to take advantage of Brexit by reviewing rules we ‘inherited’ from the EU and replacing them with new approaches which work better for the UK and its citizens". 

"Allowing more personalised forms of guidance alongside advice would free up firms to offer enhanced support to customers, not just to help them plan for their retirement, but when making other important savings and investment decisions," he stated.

The Investing and Saving Alliance (Tisa) head of retirement, Renny Biggins, also called on the government to consider changes to the advice/guidance boundary, arguing that "we need to find a way to provide consumers with the confidence and knowledge to make informed decisions".

He stated: "We must proactively communicate with financial services customers and ensure that people are aware of the support available during what will be a tough time for many. Changes to the advice/guidance boundary, enabled by Brexit, will ensure that support is provided.

“Furthermore, the government needs to urgently implement agreed to changes in auto-enrolment to ensure the continued success of the scheme, so that everyone can rest assured they are saving for an adequate pension.

“I am confident that our proposals, including improving auto enrolment and increasing access to financial guidance, if implemented, would positively influence millions of UK financial services consumers and will bring significant long-term benefits to the UK economy.”

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