Unfortunately these reasons were not a rational consideration of what is best to ensure the pensions system works  bestforindividuals (and I suppose the Government); rather the result of a long consultation was decided by concerns over a Tory MP revolt, the Government’s concerns about the direction and outcome of the “Brexit” debate and George Osborne’s own leadership desires.So the big changes were side-lined and while headline writers were more concerned with the sugar tax there were three major announcements which could yet reverberate in the pensions and employee benefits space for many years to come.
Meet LISA
A new ISA will be made available and is the first long term savings vehicle to try and kill two birds with one stone. The Lifetime ISA (or LISA) also manages to directly address the competing long-terms savings methods in the UK: property and pension. Many a time I am sure we have all heard someone describe a property as someone’s own pension. The LISA can be used to help someone’s first property purchase (up to a maximum price of £450,000) or as a pension after age 60. The LISA also has a third target and that is to, in some way, address the intergenerational unfairness and so is only open to people between 18 and 40. As people pay money in (up to a maximum of £4,000 per year) the Government will add in a top up (claimed at the end of the year) of 25% of the funds paid in. Provided the money is used for property or pensions purposes there are no further tax/penalties. However, if the fund is accessed for a non-approved withdrawal then the 25% top-up plus any investment return is lost, plus a 5% charge is also deducted. Also, from age 50, any government top-up will stop.
LISA is, effectively, a small proof of concept for a Pension ISA as it works in the same way as one could envisage a Pension ISA working. If it proves successful from April 2017 when it is launched it is not hard to see its limits extended to include more people. It also isn’t impossible to see alternative X-ISAs to be created: the Health Care ISA (HISA?); or even an Old Age ISA accessed from 80 (OISA?) each with their own bonuses and terms.
The Government is consulting on whether people can borrow against these pensions and also whether they can be accessed for other reasons without loss of the bonus (terminal illness is already included). The direction of this consultation will help to understand the direction of travel that long-term savings will take.
Pensions Dashboard 2019
The Chancellor also promised that we will have a Pensions Dashboard by 2019: a one-stop shop for people to see all their pensions pots in one place. This is something for the pensions industry to make happen successfully and will be a big ask for that much collaboration. There are many obstacles to its success and I admit I am pessimistic of its chances. However, it has been framed in such a way that failure for the pensions industry to provide this will be a PR disaster for a pensions industry often criticised for its happiness to continue its profitable status quo.
Salary Sacrifice
Salary Sacrifice usage has grown markedly over recent years and the Government sees billions in avoided National Insurance contributions disappear each year. In the Budget the Government announced that it is going to look closely at its uses and is likely to permit it for pensions, childcare and “health related” activities. The use of retail vouchers and other fluffy add ons seem to be beyond the pale for the Government and I have some sympathy with this view. I am concerned that this is a salami slice tactic. Vastly changing the rules on Salary Sacrifice and defining other steps to achieve the same end as tax avoidance would be a major step and I can see the Government continuing to chip away at Salary Sacrifice over the coming years.
Where next?
We will look back on this Budget 2016 as a watershed moment for pension savings. For the first time, pension savings is overtly from post-tax income. The Chancellor has his foot in the door of ISA-style long term savings and he is unlikely to remove it. What happens now rests on the success of LISA or how much the Government want to push it – reduce Annual Allowance limits and Lifetime Allowance limits and increase LISA’s size.
The major step would also be to confront the clear conflict between LISA (and its attractions) and the auto-enrolment experiment. Some workers will be tempted to opt-out for the extra flexibilities of LISA. The Government could allow employers to pay into someone’s LISA and still satisfy the auto-enrolment rules. That would be a game changer.
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At the time of writing (and it’s impossible for me not to comment) Iain Duncan Smith has just resigned as the Secretary of State for Work and Pensions (blaming the proposed or suggested disability benefit cuts as the reason). The Pensions Minister Ros Altmann has also waded into the debate accusing Iain of silencing her and saying that his reasons for going are purely political, with Europe his key concern.
The Tories seem to be heading for a repeat of the 1990s and self-consuming themselves over Europe. This may result in the ongoing merry-go-round of Pensions Ministers. We shall see.
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