This has been a regular in the past two or three budgets which is probably why it received little coverage, deserving nothing more than a footnote amongst the noise of changes to the Annual Allowance and Lifetime Allowance.
However, this time it is slightly different as the government has asked the Pensions Regulator to look into how they could make this work and encourage schemes to invest. In respect of Defined Contribution benefits, the Patient Capital Review body (patient capital being the buzz phrase for “sit and wait” investments) is suggesting that such investments would, once made, be free of any further Lifetime Allowance. I am sceptical that this is sufficient to result in investment sums that could get any significant infrastructure product off the ground. The number of people for whom the Lifetime Allowance is a problem AND would like to invest in the unique return profile of infrastructure is likely to be small.
However, should we have been surprised that this Budget would be so quiet and should we have speculated so much about the potential for change?
The speculation, informed and otherwise, can get feverish but is it wise to get so involved in the speculation? I admit to sullying myself in the speculation. All three of my predictions were complete misses (extension to the Lifetime ISA bonus, review of the income levels for when the tapered Annual Allowance would apply and a consultation on tax relief in general).
So why was I so wrong?
I am a clueless buffoon… no! Well I hope not.
I suspect I am operating in an echo chamber of pension professionals and advisers that are close to the issues of pensions and worry about government policy. I spend time on twitter (probably too long) reading the views of others and sometimes spouting my own into the ether. The consensus was that something would happen generally because we understand the system and how easy it would be for the Chancellor to amend things, for the worse from individual’s perspective, and to improve the Exchequer’s balance sheet, our presumption of the Government’s position.
The Government had hinted that it wanted to do something to address “intergenerational unfairness” where younger people are seen as having a hard time to get on the property ladder and save for their later lives. This was the source of my speculation around the Lifetime ISA and it was something I considered so obvious as to not be worth saying. Even during the speech I was convinced something would happen. Of course it did not and instead we got a change to stamp duty for first time buyers.
What was perhaps under-appreciated is the weak state of the Government, with many Conservatives MPs likely to be unhappy with any further reductions in the Annual and Lifetime Allowances. The Government needs as many friends as it can get, it has some tough months ahead dealing with headline issues such as Universal Credit and Brexit, the latter sucking up masses of Government resources. In hindsight the Government just does not have the time to take on major pensions changes.
Should the speculation go ahead?
Some colleagues have suggested that the speculation is unhealthy and itself feeds into a negative view of pensions and even presents the industry that expects and plans for change at regular times. If we pushed government harder to do nothing rather than speculate on what they will do could this create a healthier atmosphere? The speculation itself is destabilising.
However, people ask and people are interested. I’ll be honest I enjoy the speculation. I enjoy trying to second guess the Government and trying to plan ahead for what they might do. Journalists love to ask the question too, and sometimes I am right.
What I worry about is where there is too much speculation from a self-serving perspective. This is the biggest problem with the speculation. I like to the think that speculation I make is from a neutral perspective. However, it is clear some speculation may not be so honest. The perennial predictions around slashing of Annual Allowance and removal of carry forward, for instance, are designed to create a worry and fear amongst individuals to encourage the decision to plough money into their pension scheme “while you still can!” This is fear mongering and is disappointing. Like the “end to tax-free cash” this should be treated with caution by most people.
There are inconsistencies in the pensions system. The pensions tax system isn’t perfect. Tax relief could be seen as over-weighted to higher rate tax payers (although they pay more tax) and the way Defined Benefit pensions are valued against the Lifetime Allowance seem inequitable when compared to Defined Contribution savings and seems a clear (if slightly tricky technically and politically) change to make. The issues with net-pay vs relief at source for low earners should also be fixed.
We know the Government would love to do something. The Government has stated in the past that it thinks the tax incentive is wrong and so we are in a waiting game until they decide to make the change on the way to more ISA style saving rather than upfront tax relief.
So, will I speculate on Government policy in the future? Yes, I think it is integral to planning ahead and understanding the direction of travel. Am I excited about Budget 2018? Not so much. A calm run up I think and prepare for nothing (but secretly expect something).
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