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Five outstanding pension questions the Autumn Statement should address
The new chancellor has confirmed the date of his first Autumn Statement and speculation will mount in the coming weeks about its content. Here are five pertinent pension questions it is hoped will be answered.
Philip Hammond, the new chancellor of the exchequer, will present his first Autumn Statement on Wednesday 23 November, it has been confirmed.
It will outline the latest forecasts for the economy and public finances and will represent the first major spending announcement since the shock Brexit vote and new government leadership.
In the coming weeks, speculation will mount about its content, particularly about the future of pension tax relief, according to the investment platform AJ Bell.
This is because the Treasury’s consultation on reforming pension taxation is still awaiting an official response from the government.
AJ Bell senior analyst Tom Selby said: “George Osborne temporarily shelved a dramatic overhaul of pension tax relief at the last Budget for fear of rocking the boat ahead of the EU referendum. His plan didn’t quite work out, but proposals for radical reform – and potentially the creation of a Pension ISA – are not dead in the water.
“The creation of a new Lifetime ISA could well be the first step towards either a Pension ISA or the introduction of a flat rate of pension tax relief. However, given the ongoing uncertainty surrounding the details of Brexit, Hammond may decide now is not the time to stir up that particular hornets’ nest.”
He added there are a number of outstanding questions hanging over UK pensions that need to be answered:
- Is pensions tax relief set for the chop?
The government has yet to officially respond to ‘Strengthening the incentive to save’ consultation, which included proposals to tax pensions like ISAs. The Autumn Statement may provide an opportunity for the Treasury to update the public on its current thinking on pension tax relief.
Selby said: “The annual allowance (currently £40,000) and lifetime allowance (£1m) have been hacked back relentlessly since 2010. Further reductions are possible if the Treasury needs to raise money quickly post-Brexit vote.”
- Is the Lifetime ISA a precursor to pension reform?
The Treasury belatedly laid out the legislation governing Lifetime ISAs last week, although a number of providers have said they won’t have a proposition ready by April 2017. AJ Bell said that despite this, a delay now looks unlikely, “especially given the negative headlines government has endured recently over its Help to Buy ISA.”
- Will secondary annuities happen?
The government’s plans to allow people to sell their annuities look “shaky at best,” AJ Bell said. Crucial details about how the market will be regulated and the operation of the advice requirement are still missing, “while willing buyers and brokers appear thin on the ground,” it added.
“We have long harboured concerns both around the sustainability of a secondary annuity market and the risk savers who do cash in their plans will get a poor deal – possibly for the second time.”
However, it said that the policy is likely to appeal to older voters and Hammond may be unwilling to further delay the start date of the reforms.
- Will the state pension triple-lock be unlocked?
Before the EU referendum the government warned the valuable state pension triple-lock – which links annual increases to the highest of earnings, prices or 2.5% – would come under threat in the event of a Brexit vote. Some have suggested a “double lock” could be introduced in its place, removing the 2.5% from the equation.
However, AJ Bell said scrapping the triple-lock could be “politically toxic” given it would hit those most likely to re-elect the Conservatives at the next general election.
- Will auto-enrolment be delayed further?
Auto-enrolment has been widely heralded a success, with opt-out rates far lower than many feared. But now it’s time for the UK’s smallest businesses to roll this out to employees.
“The government has already delayed auto-enrolment for small firms once before and, if the effects of Brexit are as dire as some fear, policymakers may be forced to weigh up the benefits of boosting savings rates with the costs and administrative burden auto-enrolment places on the businesses driving economic growth,” Selby added.
