Pensions
Tom McPhail, Head of retirement policy at Hargreaves Lansdown:
The Triple Lock
The government could not realistically abolish the Triple Lock within the current Parliament, however the policy has never been sustainable in the long term. The Chancellor’s wording today is a strong hint that it won’t be around for much longer. Whilst state spending on pensions needs to be sustainable, it is also important that pensions are looked after. We are about to pass the zenith of final salary scheme payouts and pension incomes are at risk of falling back in the years to come, until the defined contributions system eventually takes up the slack.
The Cridland Review of state pension age is likely to provide a framework of recommendation on which to hang any changes to government policy on state pension inflation proofing.
Money Purchase Annual Allowance cut to £4,000 (from the current £10,000)
This means anyone contemplating drawing on their retirement savings needs to be very clear about their future retirement saving plans. Taking even £1 in excess of your tax free lump sum, or using the uncrystallised funds pension lump sum rules in your 50s for example could leave savers with only very limited scope to make further pension saving in the future. In particular it could deny them the benefit of future employer contributions.
It is vital therefore that savers plan the drawing down of any pension savings with great care, checking what the future saving implications will be before tapping into their savings. The restriction is also likely to be retrospective, so anyone already caught by the MPAA may have to adjust their pension saving plans in the future.
Hargreaves Lansdown would like to see:
- A coordinated government-led campaign to encourage personal engagement with retirement saving and in particular a pre-retirement wealth check at age 50.
- A considered review of pension taxation, with a view to eliminating the more inconsistent and unpopular elements, such as the Lifetime Allowance and the Tapered Annual Allowance.
For years now, governments have been chipping away at pension allowances. This latest announcement on the Money Purchase Annual Allowance will almost certainly not be the last. The government flags up in its consultation paper the impending increase in tax relief costs as a consequence of auto-enrolment. The writing is on the wall for pension savers: make the most of the tax breaks while you still can.
Pension cold calling
Today’s announcement of a ban on cold-calling is a welcome fight-back against the criminals who try to steal investors’ retirement savings. Banning cold-calling won’t eradicate the problem but it will help in two important ways:
It will create a punishable offence at the outset before they have even got their hands on investors’ money. Hopefully this will deter some would-be fraudsters; it will also send a clear unambiguous message; if someone cold calls you about your pension then they are up to no good.
Additional measures being explored, such as making it harder to set up pensions in the first place and giving legitimate pension companies more latitude to block transfers when they suspect fraud are also important developments which the industry has been calling for. The Royal London – Hughes case illustrated the problems faced by good pension providers when trying to protect scheme members against fraudsters.
This is not complete solution; fraudsters will not stop targeting investors’ pensions. Policymakers and regulators will need to continue to listen to and work with the pension and investment industry to address future challenges.
Economic Analysis
Ben Brettell, Senior economist:
We might have a new chancellor but Philip Hammond’s speech today came straight out of the George Osborne playbook.
Like his predecessor he was keen to stress the economic positives in his opening remarks, highlighting that the IMF predicts the UK will be the fastest growing major economy this year, with employment at a record high.
To be fair to Mr Hammond, the economy has proved surprisingly resilient in the wake of the vote to leave the EU. Nevertheless forecasts were unsurprisingly downgraded, to 1.4% next year and 1.7% the year after.
Also predictable were the abandonment of the commitment to eradicate the deficit by 2019/20 and the announcement of a mild fiscal stimulus, focused on housing and infrastructure, and with an emphasis on regional development and improving productivity.
This focus on productivity was welcome, and long overdue. The UK has fallen behind in productivity for too long, though it should be noted that promising to tackle the problem is much easier than finding a solution.
NS&I Savings Bond
Danny Cox, Chartered financial planner:
We saw from the popularity of the NS&I “pensioner” bonds introduced back in January 2015, how savers are desperate for a better return on their cash. With no end to low interest rates in sight a new bond aiming to pay 2.2% over 3 years and a limit of £3,000 is a decent gesture, but with inflation rising and heading toward 3%, its unlikely money in this new bond savings will do anything but go backwards.
Salary Sacrifice
The Chancellor has announced that salary sacrifice arrangements will now only benefit from a saving on employee National Insurance, with the tax and employer National Insurance benefits being taken away.
This will be effective from April 2017, although arrangements set up before this can remain in place until April 2018.
Certain benefits are will retain the tax and employer National Insurance savings;
- Pensions (including advice)
- Childcare
- Cycle to Work
- Ultra-low emission cars
In addition, arrangements for cars, accommodation and school fees will be protected until April 2021.
Nathan Long – Workplace savings & benefits consultant:
Theresa May wants to deliver a society that works for all. Today’s salary sacrifice changes retain tax incentives for the key company benefits that share these principles but has made other valuable benefits less attractive.
These changes effectively increase the cost of some benefits for all where previously their cost was offset with a tax saving. This increase will do little to help the JAMS who presumably will continue to just about manage albeit slightly less well, although the change does impact higher rate tax payers more than those paying basic rate tax.
Anyone accessing workplace benefits other than for pension, childcare vouchers, cycle to work and low emission cars should consult their employer in the weeks to come to see how they are impacted.
Employers will now be taking time to review the benefits they offer, if they remain valuable and how these tax changes impact on their workforce.
