A theory currently doing the rounds is that the political carnage created in the aftermath of the EU referendum could actually benefit UK pensions policy, writes Tom Selby.
Most in the financial services sector agree pensions have suffered as a result of incessant tinkering by successive governments since A-Day and supposed ‘simplification’ in 2006.
Former chancellor George Osborne had a particular fondness for tweaking retirement savings allowances during his tenure in Number 11, overseeing a series of cuts to both the annual and lifetime allowances.
This trend continued after the 2015 general election with the introduction of a tapered annual allowance for those earning above £150,000 and a new £10,000 money purchase annual allowance – subsequently cut back to £4,000 without any particular justification.
While clearly much of this was about bolstering Treasury coffers, few would argue it represents a coherent approach to pensions policy. Now, however, some think stability for pensions could be an unexpected and potentially welcome consequence of Brexit.
The Great Repeal Bill proceeding through Parliament requires all European laws to be transposed into UK legislation. Make no mistake – this is a herculean task and will require thousands of EU laws and directives governing all manner of industries and activities to be turned into UK law by 2019.
The House of Commons library – not known for its use of hyperbole – has described this as one of the largest legislative processes “ever undertaken”. Such a draining task drags resources from the Treasury and, importantly, time from Parliament to pass new laws and implement new reforms.
Given the inevitable complexity involved in changing pension rules, many hope the Brexit anvil around the government’s neck will deliver a bonus in the form of a period of stability for savers.
Certainly controversial big-ticket changes – such as fundamentally reforming pension tax relief – will be extremely difficult to implement with a thin majority and Brexit taking centre-stage. As I have written here before, however, the need for cash in the short term means the threat of further changes to existing allowances will remain.
While stability, if it comes, is certainly better than constant tinkering when it comes to pension tax relief, the government could and should go further by hard-wiring some certainty into the system. Given the legislative logjam created by Brexit, there is a clear window of opportunity for the political sting to be taken out of pension tax policymaking by establishing an independent review of the whole pension tax edifice.
A period of no change could, however, prove a mixed blessing and pensions policy victims are already beginning to emerge – most notably with regard to measures to tackle pension scams, including a ban on cold-calling, which some had speculated could be introduced in last week’s Finance Bill.
That had always seemed fairly optimistic given the timescales involved but government’s weak commitment to introduce the measures “as soon as Parliamentary time allows” suggests these vital protections face being side-lined, at least temporarily, by Brexit.
Equally, reforms to accelerate increases in the state pension age deemed necessary for long-term stability may not be legislated for until 2022. Other issues – such as the Lifetime ISA early withdrawal charge – also need to be looked at again but are unlikely to be a priority in the current environment.
So while a zombie administration might bring some continuity, the price could be delays to important changes that would improve the system.
Tom Selby is a senior analyst at AJ Bell