Is a pensions shake-up on the way?
In 2015, George Osborne’s consultation on tax relieved incentives and retirement saving hinted at wide ranging changes and although 2016 saw the Lifetime ISA (LISA) subsequently introduced, wider reform was deferred with the declaration that it “was not the right time”.
Despite Osborne having championed the LISA, with it becoming operable from April this year, it would appear that only one provider will be ready to offer it at the launch date.
Worryingly, a Government infographic titled “Ways to save in 2017 – Learn about ISAs and other savings options” was remarkable for its listing of multiple versions of ISAs, whilst totally omitting reference to pensions as a savings vehicle. Was this a civil servant slip up, or something more sinister?
The question is, is now the time to make more changes?
The underlying fundamentals that Government have to consider haven’t changed. Tax relief granted on pension contributions are a continually increasing source of lost revenue. Pensions are high in the mind of the Government and February saw the release of another consultation, this time looking at the defined benefit pension scheme sustainability.
The effects of Brexit are not yet known but most commentators are in agreement that there will be a need to stimulate the British economy and therefore the tax taken from it is unlikely to increase. Revenue will therefore need to be obtained from other sources and pensions could again be in the firing line.
Chancellor Philip Hammond (pictured) has shown he is not afraid of distancing himself from his predecessor. In October last year he announced the scrapping of the proposed second hand annuity market, originally an extension of Osborne’s pensions freedom campaign. Regarded as a U turn, will we see another one with him limiting the use of the LISA, or will we see Hammond taking the opportunity to make his own name?
At our annual seminar last month, opinion was split with 46% of intermediaries attending suggesting they expected “no change” to the current pension regime in the March Budget. Of the remainder though, the vast majority foresee a shift towards LISA style retirement saving.
If the Government’s intention is to replace the current pensions regime with a LISA style regime, then we need a clear statement identifying whether they plan to have the two running in parallel or whether the pensions regime might be run down in favour of the LISA.
If Hammond is keen to change the way in which people save for their retirement to an ISA style regime then we could see the pensions annual allowance, which is currently at £40,000, reduced further to perhaps £30,000 and the current LISA allowance of £4,000 increase to perhaps £8,000, with this process continuing until the annual allowance is discarded and there is no further opportunity to save into a pension as we know it.
We shall see, but if there is to be radical reform, let us hope that it is announced in a fair and balanced way, and with a lead in period allowing understanding and education of the changes and their ramifications.
Martin Tilley is director of technical services at Dentons Pension Management