Kathryn Fleming, Partner, Hymans Robertson says:
“We are very pleased to see the government update in today’s Spring Statement regarding changes to childcare. Following on from our comments at the Work and Pensions Select Committee regarding the importance of reducing the ever widening Gender Pensions Gap, any actions that can be taken to reduce the gap through a reduction in career breaks, is welcome. We hope today’s announcement goes some way to encouraging women back into the workforce by helping to reduce the caring responsibilities which disproportionately impact women, and in turn continue to drive a gap between the genders when it comes to pensions.
“However, there is much more that needs to be done to help those with wider carer responsibilities, and we look forward to the government and Pensions Minister considering ideas like the Auto Enrolment Carers Credit next. That said today’s announcement, when combined with the potential changes to the automatic enrolment that are currently making their way through the House of Commons, points towards an unlocking of a door of policy change that will help remove pension inequality barriers. We look forward to seeing this government push the door wide open.”
Matthew Arends, Head of UK Retirement Policy at Aon: “The Government is signalling to all adults the importance of saving for retirement with today’s announcement of an increase to the Annual Allowance (AA) and the surprise abolition of the Lifetime Allowance (LTA) – this, along with the likely extension of automatic enrolment, is really welcome news.
“With no LTA, people can save without the need for elaborate tax planning. To put this into context, even after recent improvements in annuity prices, for people with DC savings, a pension pot of the current LTA of £1.07 million equates to an annual pension (after tax) of around £37,800 – broadly equivalent to ‘comfortable’ under the PLSA’s Retirement Living Standards, and less than ‘comfortable’ for anyone living in London. Without the concern of working around this artificial, tax-driven ceiling people can simply save as much as they can to support their old age as comfortably as they can.
“This is especially good news for the next generation of private sector pension savers – Generation X – the majority of whom have had limited access to final salary pensions and who are now within 10-15 years of their potential retirement date.
“As has been well-publicised, the LTA has come to be regarded as disincentive to pension saving and increasingly a cause of early retirement. Raising the limit can only be a good thing by taking away these issues and freeing people to save in a way that is both far more straightforward and tax-efficient.”
Dean Butler, Managing Director for Customer at Standard Life: “Today’s pension tax reforms focused on higher earners and those towards the end of their careers, however for the majority of UK workers the risk of under-saving remains is the biggest threat to their ability to retire.
“Now working its way through parliament is a Private Member’s Bill which will allow the qualifying age for auto-enrolment to come down from 22 to 18 as well as removing the lower earnings threshold. This means people will be able to start contributions from the first pound of earnings which is an effective way to boost saving contributions.
“It seems any change to the percentage of salary contributed by employee and employers is off the table while inflation stays high, but further down the line we’d like to see minimum contributions increase to 12% to ensure savers currently in the earlier stages of accumulating their retirement savings stand a chance of benefiting from today’s reforms in the future.”
Steven Cameron, Pensions Director at Aegon comments: “The Chancellor pulled a massive rabbit from his Budget hat by scrapping the Lifetime Allowance, rather than a rumoured increase to £1.8m. This comes at the same time as the Annual Allowance is being increased by 50% from £40,000 to £60,000, and the Money Purchase Annual Allowance being raised from £4,000 to £10,000.
“It has always been excessive to have both a lifetime and annual allowance, effectively limiting not just how much can be paid in each year but how much you can hold on a tax favoured basis in total. With most people now in a defined contribution rather than a defined benefit scheme, it makes sense to focus on setting a limit on contributions rather than ultimate benefits. In a defined benefit scheme, having a lifetime allowance meant those who saved diligently could end up facing a tax penalty if they achieved good investment returns.
“Removing the lifetime allowance will also cut out a swathe of complex pensions tax rules. It will allow individuals who have stopped contributing for fear of exceeding it to consider restarting contributions. It may also, subject to any detailed provisions, allow people who have already started taking benefits to top these up.
“Not surprisingly however, the amount which can be taken tax free will be restricted to 25% of the current Lifetime Allowance of £1,073,100 or £268,275. Allowing 25% of an unlimited pension pot tax free would have been excessively generous.”
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