Green gilts
“Thanks to concerns over climate change, the sale of the UK’s first ever green gilt went down a storm. £10 billion was raised on 21st September, and reportedly there were £100 billion of bids for the gilt. Bonds are already in high demand, thanks to the presence of a price insensitive buyer in the form of the Bank of England, as well as regulations which encourage pension schemes and insurance companies to hold gilts. Add in a green tint which can help pension trustees bolster their ESG credentials, and you have a very potent sales mix indeed. The fact there’s also so little supply has also no doubt helped to put bums on seats. Just £15 billion of green gilts are planned this year, a drop in the ocean compared to the £250 billion of bonds the government intends to issue in total. The Chancellor may therefore use the Budget to announce more green gilt issuance, ahead of COP 26 in November, and to capitalise on the huge current interest from the investment industry in ESG friendly assets.”
Pensions & IHT
Tom Selby, head of retirement policy at AJ Bell
“Pretty much every major spending event over the past decade has been preceded by rumour and speculation about the future of higher-rate pension tax relief.
“However, removing higher-rate relief would be a direct attack on middle Britain, leading to people who do the right thing and save for their future being hit with extra tax costs.
“It is also far from clear how a flat rate of pension tax relief would be applied to defined benefit (DB) schemes, where contributions come from pre-tax ‘net pay’.
“Any solution would inevitably see members of public sector DB members – including doctors and NHS workers who were clapped as heroes during the pandemic – landed with significant tax bills as well.
“While strained public finances demand the Chancellor reviews all areas of public spending, a dramatic pension tax relief raid would come with huge practical challenges and political risks. There are however, easier ways for the Chancellor to reduce the cost of pension tax relief.”
Annual or lifetime allowance cut
“If the Treasury is looking to save money on pension tax relief, the annual allowance is the simplest lever to pull. The annual allowance is currently set at £40,000, while savers can also ‘carry forward’ up to three years of unused allowances as well.
“Lowering this 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.
“The lifetime allowance could also potentially be reduced, although given it was frozen for the rest of this Parliament at just over £1 million at the last Budget this seems highly unlikely.
