Chancellor Philip Hammond will deliver his next Budget on 22 November. RP has canvased pension professionals to find out what they want to hear (and what they don’t) from Hammond’s first Autumn Budget.
Technical Connection head of pensions strategy Claire Trott
I would love to see something sensible that will show commitment to pension savings now and in the future.
All the issues we have with trying to calculate the annual allowance when taking into account the tapered annual allowance and the money purchase annual allowance causes concern even for those not impacted by these measures. It sends the message that the government doesn’t want people to save for retirement even if they are actually saying otherwise. I would rather see an overall reduction in the annual allowance than this multi-tier and complex system we are trying to work with now.
In addition to the issues with the annual allowance the constant fear that the government will raid pension tax relief to try and combat the deficit means that planning any long-term savings strategy seems pointless to many.
All of this just boils down to the fact that we need clarity and consistency in pensions to try and encourage long-term engagement with those that need to save to have a comfortable retirement without the need to fall back on the state as soon as they have to cease work.
Dentons Pension Management director of technical services Martin Tilley
The Institute for Fiscal Studies suggests that Chancellor Philip Hammond is under pressure to spend more while tax increases look difficult to implement. The NHS and social care need funds but where to get them? Now is not the time for increased borrowing, which means raising extra revenue through tax rises seems inevitable.
Although one way of raising taxes is to reduce tax reliefs.
Pensions have always been the political and fiscal football kicked around pre-budget and this year has been no exception. Providers, think tanks and others have thrown their ideas into the fray with one suggesting Mr. Hammond has shown interest in redressing the intergenerational inequality of the tax relief relating to funding pension savings. One option is an age-related rebate but this would be hugely difficult to administer and Generation Y still cannot save money they simply do not have.
Conversely, another often touted option, a flat rebate system, does not help youngsters with no money and penalises higher earners.
Studies often show intended courses of action to be a tax neutral position for the Treasury but it is difficult to see how much longer this card can be played.
While I would dearly love for pensions to escape any form of change at all, I really cannot see it this year. Therefore, if we have to suffer the knife, a personal preference would be limiting tax relief by reducing the annual allowance from £40,000 to £30,000. This would be perhaps one of the easiest changes to explain and administer.
As a quid pro quo though, it would seem sensible to remove the tapered annual allowance, which is universally abhorred by providers, advisers and clients alike.
Intelligent Pensions technical director Fiona Tait
No rabbits out of the hat, please
In the context of pensions, what I would like to see in the Autumn Budget is quite simple – nothing. No changes to the rate of pensions tax relief, no new allowances and no rabbits out of hats. It’s not that the current system is perfect – far from it – but constant tinkering with the rules since 2006 means that the concept of pension simplification has been buried almost without trace. The rumoured introduction of age-related reliefs could provide the final shovel load of obfuscation.
Unfortunately, the pressure to raise funds means that the temptation to have another go at tax relief will be considerable.
If the chancellor feels impelled to raid the pot again my preference would be that it is within the existing structure, i.e. reducing allowances rather than introducing new ones. This could achieve his objectives while being relatively simple to implement.
If more fundamental changes, such as a move to single-rate tax relief, are planned then it is essential that a reasonable period of consultation is factored in to allow all affected parties to properly prepare.
Even better would be the introduction of a non-political standing commission to manage changes and to inform long term strategy on pensions and social care.
Failing this the Chancellor could introduce some positive changes by widening the scope of automatic enrolment to include the self-employed and announcing an immediate review into minimum contribution levels.
He could also introduce legislation to making it mandatory for all pension schemes to participate in the pension dashboard service, and for individuals to use the newly-merged guidance service before accessing their pension savings.
Curtis Banks pensions technical manager Jessica List
I would like to see some clarity around the inheritance tax (IHT) rules and pension transfers.
We know that HM Revenue & Customs (HMRC) may class a pension transfer as a ‘transfer of value’ for IHT purposes if an investor knows he or she is in ill-health at the time of the transfer, and then dies within two years. Knowledge of the ill-health condition is key: a transfer can only count as a transfer of value if the investor intended to ‘confer [a] gratuitous benefit’ on someone as part of the transfer.
The Staveley case earlier this year highlighted the importance of this condition. A tribunal ruled that Mrs Staveley was not intending to confer a benefit on her beneficiaries, as they would have received benefits anyway and there were other clear reasons for the transfer.
With the volume of pension transfers currently taking place, this ruling understandably caught the industry’s attention. Would the same logic hold true in other cases? Could this condition apply to any transfer where the investor does not change their beneficiaries, or where there are other well-documented reasons for the transfer?
As things stand, we simply don’t know. Not only is there a lack of comparable case law, but the Staveley case shows that HMRC’s guidance and interpretation can be successfully challenged.
The IHT Act 1984 was already updated recently in relation to pension changes, to clarify that an individual is not omitting to take a benefit (which could create a transfer of value) if they do not withdraw available income from a drawdown fund. I think advisers and providers would welcome similar updates in this area.
InvestAcc sales and marketing director Nigel Bennett
Halt the ‘pension income supertax’
If the Chancellor was to grant us three wishes it would be to remove the lifetime allowance, reform the annual allowance (including removal of tapering) and to end the yearly speculation about removal of tax-free pension commencement lump sums.
In terms of what we actually expect, there may be changes to the early retirement date and the amount of the annual allowance. We may also see confirmation of increases to the lifetime allowance, which are expected to increase by CPI from April next year.
We also want to see a strengthening of the regulations affecting small self-administered scheme arrangements, to prevent scammers from exploiting regulatory loopholes.
Hopefully, there will also be changes to bring tax relief under net pay and relief at source schemes into line.
Finally, we would like to see something which addresses the problems caused by ‘pensions income supertax’ rates, due to the way PAYE affects lump sum income withdrawals, with customers having to reclaim excess / overpaid tax in a fairly cumbersome manner, with many presumably unaware that they need to do this.
With so much uncertainty, it does not seem like the time for further bold changes to pensions. There are arguably many areas that need to be reformed, but we would rather this was done when the country and our government is on a more steady footing. The legislative agenda is fully packed as we prepare to leave the EU.
Any hastily announced large-scale reforms may be hijacked and lead to further political instability, therefore we expect fairly non-contentious announcements when the Chancellor delivers his first Autumn Budget.
DP Pensions director Elaine Turtle
In a world that is in constant change, the current Chancellor has the opportunity to do something dramatic for the financial services sector in his first Autumn Budget and that is nothing.
Strange you might think, but by doing nothing Chancellor Philip Hammond can provide a period of stability and calm that the long-term savings sector needs.
Stability will help rebuild trust and create a system that long-term savers want to use and can have confidence in. For those buying a product to save for their retirement now, it is really important that it has similar or better features in 10 or 20 years’ time.
With the current perceived instability, we are in danger of not encouraging the young members of society to save and also of putting off the older savers. For young savers they have so many calls on their money such as house deposits, paying off student debt, paying for a wedding etc. that long-term savings, no matter how tax efficient, are the last thing on their minds and if we don’t encourage saving we will end up with compulsion.
So I would urge Mr Hammond to do what is best for the next generation of savers, and for those that have been prudent savers and take a long-term view by doing nothing to pensions in his Budget on 22 November.
Mattioli Woods senior technical and development manager George Houston
I guess that because the briefing and rumours have been so plentiful in the run-up to the Budget, my wish would be that it isn’t as impactful as I fear it might be.
If the Chancellor is going to make changes to tax privileged investments such as EIS, VCT and AIM portfolios, I do hope that this will be done in a joined-up way and that any changes that do emerge still afford clients the opportunity to invest in these areas to legitimately mitigate their taxes.
The subject of pensions tax relief remains a bit of a hot potato – I think there is an acceptance that change is needed – and inevitable – but this is a complex area and any changes would need a long lead-in time to allow for system alterations to be made.
Last Budget, I wished for some simplification to be applied to the operation of the money purchase annual allowance – it’s still on my wishlist this time around.