Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: “There is often speculation that higher rate pension tax relief will be reformed given it comes at considerable cost to the government and the size of the budget challenges this time made its inclusion more likely. However, the chancellor has opted to leave the system untouched, and this is likely due to the complexity of making changes, particularly in relation to defined benefit schemes and in finding a system that incentivises all savers.
“At the moment savers receive tax relief at their highest marginal income tax rate. For higher rate taxpayers cutting the rate of relief received from 40% to the basic rate of 20% would mean a significant reduction in the value of their pension contributions. In the past a flat rate for both higher and basic rate taxpayers, potentially at 25%, has been floated. This has its potential advantages in terms of fairness and simplicity but changes of this nature need to be carefully considered to assess what impact they will have on the nation’s savings habits.”
Lifetime allowance freeze continues despite allowance losing over £100K in value in the last year alone
Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: “We’ve seen no movement in relation to the pensions lifetime allowance, despite speculation the freeze on the limit could be extended beyond 2026 as currently planned. With inflation at around 10%, the lifetime allowance of £1.073m has effectively lost £107,300 of value in real terms in the last year alone.
“While a savings limit of over £1m sounds like a huge sum, many middle earners who save regularly over a lifetime will eventually hit the limit which punishes people for doing the right thing and preparing for the future.
“The effects of the policy are particularly noticeable in the NHS where an exodus of senior staff is being linked to pension tax bills and in September the former health secretary set out measures designed to help retain higher earning NHS employees facing this challenge. If current rates of inflation continue, the current freeze is likely to come under more pressure as more and more people are brought into scope.”
Reduced energy support will add to household squeeze- but it’s important we don’t reverse auto-enrolment’s gains
Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: “Last weekend the Chancellor highlighted the eye-watering cost of the current universal £2,500 energy cap when he stated that the cost is equivalent to the entire NHS budget. The decision today to scale down this support, while widely expected in the current fiscal environment, will inevitably lead to difficult decisions for middle as well as low earners regarding their budgets and savings.
“With the energy price cap now sitting at above 10% of the average UK salary, the immediate challenges of balancing household finances and maintaining savings will continue into 2023. Taken alongside sharp price rises elsewhere in the economy and rising interest rates increasing the cost of borrowing, there is a real possibility that savings could be understandably sacrificed in the face of short-term pressures. It is relevant to view these challenges in the context of the 10th anniversary of auto-enrolment last month which has been a huge success in embedding a savings habit across the workforce – it’s important that this is not lost. One mitigating factor built into the scheme for anyone who does opt out is re-enrolment which encourages people to consider re-enrolling every three years.”