“The Government has indicated it is leaning towards a Pension ISA-style system where although pension contributions are made after tax, the benefits will be tax-free when received. In this case, there is likely to be an as-yet-undefined incentive from the Government for people keeping their savings in their pensions until the age of 55.
“However, Osborne may have accounted for the billions of pounds due to be received by the Treasury in unclaimed tax relief and might now have a black hole that needs filling.
“A number of other areas might therefore be focused on next week. Employer financed retirement benefits schemes (EFRBs) may, although not liked by the Government, be subject to wholesale review; Osborne may look to amend the NI savings that salary sacrifice arrangements make – most likely a change to the employer saving or a restriction as to the level of salary sacrifice that can be used; or the Annual Allowance could be further reduced for everyone from £40,000 – or we could see a reduction in the salary threshold and total income measured for the tapered Annual Allowance.
“The Lifetime Allowance could also be reduced further for all from £1m (although the Government has previously pledged not to do this) but more likely is a change in the factor used for DB pension schemes (which is currently 20, but could become 25 or 30), making them more comparable to DC fund values and the equivalent income – this could push many more people who are in DB schemes over the Lifetime Allowance and so it is possible that this would only apply to new pension benefits. Pension ISAs, as mentioned above, could be introduced for new or young pension savers, but having two codes running in parallel would be difficult in practice. Flat rate relief is still the favourite to be introduced at some point in the future, although the 10-year lead suggested by an MP on Newsnight last week looks unlikely. Finally, there may be changes to tax-free cash, such as a reduction in future tax-free cash rights as a function of the future taxation method on contributions.
“Pensions policy is something that can be returned to in the future, and any changes could be announced in the Autumn Statement after the fallout of the EU referendum is fully understood. It isn’t clear what a further six months of speculation and rumour will do for the credibility and stability of pension savings, as the issue does not appear to have been completely abandoned by the Government. It is important we watch the Budget carefully, as anything could happen – a week is a long time in politics and pensions. It is perhaps disappointing that what is right for pension saving is not determined by a real and rational consideration of the facts but purely by politics, and ensuring the Tories succeed in 2019 and Osborne has a decent shot at becoming Prime Minister.”
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