Emergency Budget Predictions: Pensions
While reforms of seismic significance are probably unlikely in the Budget slated for 8 July, the Conservative government is now equipped with a parliamentary majority – and Chancellor Osborne wants to outline his own policies for the year ahead. Existing initiatives will be advanced, and new measures almost certainly introduced. YourMoney.com spoke to three pensions experts about their expectations.
“There are many things that could be included in the Budget that could simplify pensions immensely – but these are not headline grabbers, so it’s unlikely they will find their way in,” says Claire Trott, head of technical support at Talbot and Muir.
Nonetheless, she hopes that restriction on transfers for those with protected tax-free cash is addressed, as is the ability to unwind a money purchase scheme pension.
“These changes would mean extending the intentions of the pension freedoms to those who are currently disadvantaged by historical legislation,” Trott says.
Trott also hopes that greater clarity on the resale of annuities will be offered, but isn’t certain it will appear.
Martin Tilley, director of technical services at Dentons Pension Management, would like to see pensions left alone entirely in the Emergency Budget.
“Sadly I can’t see that happening – manifesto pledges need to be honoured and paid for,” he laments.
“Nonetheless, I am hopeful that as Baroness Altmann hasn’t been Pensions Minister for long, the government will be wary of announcing any sweeping changes, for fear that they’ll be perceived as knee jerk and insufficiently thought out.”
Trott believes the election promise to reduce the annual allowance from £40,000 for those earning over £150,000 will be formally announced in the Budget.
The removal of the lifetime allowance (LTA), the limit on the amount of pension benefit that can be drawn from pension schemes, has been long-rumoured, and Baroness Altmann favours the policy.
The move would be popular with both the public and advisers.
“The LTA has been the bane of the industry for almost a decade,” Tilley explains.
“While it had merit when pension contributions were permitted at a significantly higher level, now they aren’t – and imposing both a cap on contributions (through the annual allowance) and a collar on growth (through the lifetime allowance) seems unnecessary.”
Nonetheless, few think it a likely prospect in the near future, much less the Emergency Budget.
“It would be an embarrassing U-turn for the Conservatives, as the March Budget introduced a measure to reduce the LTA to £1m from next April,” says Trott.
Paul Evans, pensions technical manager at Suffolk Life, believes an increase or even removal of the LTA may occur closer to 2020, as “such a positive change would be well received by the voting public before the next election.”
The Conservative manifesto committed the party to a policy of reducing tax relief – currently 45 per cent – on pension contributions for anyone earning over £150,000.
Evans, Trott and Tilley agree that this is the most likely change to emerge on 8 July.
“This was a classic example of a fair idea that wasn’t run by experts first,” believes Tilley.
Since it is often difficult to determine exact earnings ahead of the end of the tax year, individuals and pension providers may not know what relief to apply on mid-year contributions.
“A proportional reduction of the annual allowance, based upon every £2 of earnings above £150,000, is a ham-fisted and administratively complex way of achieving their goal,” Tilley concludes.
Evans thinks it’s likely this will be restated on 8 July – and top rate taxpayers “should consider either topping-up their pensions, or bringing forward regular contributions, so that they are made before the Emergency Budget.”