Romi Savova, CEO at PensionBee, has commented on today’s emergency budget.
“Today’s announcement from the Chancellor provides welcome relief for many households, by reducing the household rate of inflation with a cap on energy prices, and cuts to National Insurance rates and personal taxes, allowing consumers to keep more of their take-home pay.
“These measures make the cost of living more affordable for many, including keeping savers on track with pension contributions, when they previously may have considered pausing their contributions or opting out of workplace pension schemes.
“The government’s decision to bring forward a cut on the basic rate of income tax to April 2023, while maintaining a one-year transitional period for pension savers to continue to claim tax relief at 20% on contributions, should make pension contributions more affordable and therefore attractive.”
On Tax Reform:
“Over the long-term, the government has expressed a desire to simplify tax. As part of this agenda, PensionBee would urge the government to consider implementing a new flat rate of pension tax relief (at 25-30%), as too many people continue to miss out on this crucial benefit as they aren’t aware that the government offers tax benefits for saving into a pension.
“The government can deliver a clear and simple message when it comes to pension saving by offering a flat rate of tax relief, leaving behind an incredibly costly and complicated system, in favour of one that truly rewards everyone for putting money away for their retirement.
“A universal rate will level the pensions playing field, stopping consumers across all tax brackets from missing out, encouraging greater pension saving, while also maintaining simplicity in the overall tax regime.”
On the Pension Charge Cap:
“While the government has decided to bring forward draft regulations to remove well-designed performance fees from the occupational defined contribution pension charge cap, it remains to be seen what well-designed fees really mean. It is a challenging time for all investment classes. There is no guarantee that private market assets will outperform public equity markets, especially given the liquidity challenges with some of these potential assets.”
What was missing?
“It’s disappointing to see no plans to increase the current Lifetime Allowance for pensions, which was frozen at £1,037,000 in the previous Budget. While there are already sensible limits on how much an individual can pay into their pension each year, the current Lifetime Allowance limit punishes those who have saved diligently throughout their working life and contradicts the government’s message that everyone should be saving for retirement.
“The freeze, coupled with spiralling inflation means the amount one can save into their pension without suffering penalties is plummeting. Continuing to leave the Lifetime Allowance at its current threshold, presents a real threat of long-term damage to the retirement livelihoods of many everyday savers.
“The Lifetime Allowance also deters young savers from making meaningful contributions towards their retirement for fear they may exceed it. PensionBee research found that workers aged between 18 and 21, with salaries of around £22,000 will exceed their allowance by the time they reach their late 60s, found that workers aged between 18 and 21, with salaries of around £22,000 will exceed the allowance by the time they reach their late 60s, almost a decade before they will qualify for the State Pension.
“In addition, it’s concerning to see that the Money Purchase Allowance has also not been adjusted to increase in line with inflation, leaving many over 55s who may have already dipped into their pension for financial support in a restricted situation if they plan to make future pension contributions.
“PensionBee would welcome an increase in the Money Purchase Allowance to ensure savers who may have been adversely affected by the pandemic and cost of living crisis are not prevented from future saving opportunities.”
Find out more about PensionBee.
Also, be sure to read our update right here on IFA Magazine.