Could the pension freedoms be reversed?
However, there are new fears that the freedoms could be truncated – if not reversed outright – by a future government. Earlier this year, Mark Twigg of Cicero forecasts that a Labour administration would at least introduce rules obliging retirees to convert some of their pension into a fixed-income product, although he didn’t rule out a complete return to the former UK pensions system. AJ Bell recently published a survey of financial advisers, which revealed 64 per cent of respondents did not believe the new rules would last more than a year after the General Election if there was a change of Government. Your Money asked a number of experts for their view.
Claire Trott of Talbout & Muir believes that any regressive tinkering with the UK’s new pension regime could be a real detriment to retirees. “I don’t think Labour would dream of fully reversing Osborne’s pension freedoms,” she asserts, “but I do think they’d tamper with the pension regime overall. In fact, whoever wins the next election is likely to tamper with certain aspects of the current regime – the coalition already were themselves.”
“Many advisers I’ve spoken to have aired grievances about the constant meddling with how much people can save into their pension,” Claire notes. “I couldn’t believe they went through with the cut to £1m. In ten years, it increased twice – to £1.5m, then to £1.8m – now it’s almost halved again.”
“It’s the same story with maximum contribution levels, which peaked at £255,000 per annum and are now right down to just £40,000 for most. I understand the desire to curb tax relief, but politicians seemingly don’t understand that in order to qualify for tax relief, one has to pay the tax in the first place – tax relief isn’t free money being given away by the government.”
However, Claire does believe that Labour could reverse death benefit changes, in particular the tax exemptions for inherited annuities, as “to do so would be very simple, and would claw back some lost tax.”
“I’m not sure the amount of money reclaimed would be that high in the scheme of things, but the exemption was seen as a benefit for those with large pension savings – so Labour could make them a target anyway.”
Richard Collinson of Retire Easy believes that Twigg’s forecast – retirees compelled to secure a guaranteed minimum income – could well come to pass, as a way of alleviating the potential problem of retirees emptying their pensions too rapidly.
However, Richard believes that changes to the tax relief offered on pension contributions are certain. “It is very likely that Labour will substantially curb higher rate tax relief or scrap it altogether if they get in,” he says, noting that current tax relief is a particular “bugbear” of Shadow Chancellor Ed Balls. “Another thing that bothers Balls are the new death benefit rules – they’ve made pensions an excellent IHT planning tool, and Labour aren’t keen on the prospect of pension wealth being passed on free of charge,” he notes. “A Labour government would almost certainly repeal or modify the rules, to make them less flexible.”
“Rolling back the changes wouldn’t offer Labour tangible benefits in terms of popularity – in fact, quite the reverse,” Richard continues. “However, policies based on ideology have a habit of being implemented regardless of their approval, so they may come to pass regardless.”
“Much of Labour’s public opposition to the freedoms is based on the assumption that retirees will behave recklessly and quickly run out of money,” Richard concludes. “With any luck, if and when the issue reaches parliamentary discussion, there’ll be ample evidence of how over-55s have dealt with their new freedom – and such assumptions could be proven to be without foundation.”
“With any luck, retirees will have proven themselves more than capable of looking after their money in a sensible, prudent manner. We created a free planning tool so retirees can see for themselves what the risks and opportunities are, for free.”
Click the image above to visit the Retire Easy tool.