How will the budget affect the pensions industry? You’ll find all the predictions, announcements and reactions here updated live as they come in…
17:07: Rod McKie, Head of Retirement Proposition at Zurich thinks the future is wrappered:
“The review to incentivise savings under the Budget has highlighted the value to employers of having a flexible pension and non-pension savings platform at the heart of their remuneration administration.
“Whilst the outcome of the review cannot be certain at this stage it does seem clear that the future of UK savings in the workplace will be founded on being able to access pensions, ISAs and GIAs in one place to allow employees to save into wrapper(s) that suit their personal circumstances and saving goals.”
16:58: Paul Carney, a partner at law firm Shoosmiths argues that the government has lost sight of the true purpose of the lifetime allowance, and indeed the cost of buying an annuity.
“I am generally uncomfortable with the Government’s (and not just this Government’s) constant tinkering with the LTA. When the LTA was introduced as a concept, it was based on what had previously been the permitted maximum. Without boring everyone to death with what that means, the LTA was an assessment of what it would cost an individual to purchase an annuity which would deliver 2/3rds of the permitted maximum; this equated to more than £66,000 per annum.
The Government has (not accidentally) lost sight of the cost of buying an annuity”
“This concept has clearly been discarded and the latest modification seems to me to confirm that the idea has been permanently shelved and to indicate that the Government has (not accidentally) lost sight of the cost of buying an annuity. Whenever I mention that to buy an annuity which would yield around £35,000 per annum, one would need to have a pension account in excess of £1m, there are gasps of astonishment.”
16:43: David Piltz, head of trustee services, Buck Consultants at Xerox, points out that the cap in lifetime allowance could lead to employer disengagement.
“The change in the annual pension relief allowance for people who earn over £150,000, means the total tax efficient contribution rate that higher earners can pay into pensions could be less than 5% of earnings – far lower than the typical levels (say 15%) which the pensions industry feel will give a decent level of retirement income.
”Crucially these high earners are the very people who are likely to be setting the contribution rates into UK pension schemes, so disenfranchising them could have far reaching consequences. This is very important bearing in mind that although we have over 5m new savers, as a result of the automatic enrolment initiatives put in place in 2012, people are still saving at relatively modest levels and we need people to increase their savings rates if they are to provide meaningful retirement incomes.”
16:38: David Robbins, a senior consultant at Towers Watson questions whether the government may be making rash decisions, tempted my the promise of extra tax now:
“To implement the change, pension schemes would have to segregate ‘old pensions’ from ‘new pensions’ – so that only savings that benefited from tax relief upfront get taxed on the way out. If the Government wanted to bring forward even more revenue, savers could be invited to pay a one-off levy now and then be able to access everything tax-free. This could even be made compulsory.
Savers could be invited to pay a one-off levy now and then be able to access everything tax-free”
“An ageing population will do enough to depress future tax revenues without the Government taxing tomorrow’s pension incomes today. Anything that makes headline borrowing numbers look healthier by bringing forward tax revenues risks leading politicians into temptation – would they really run bigger surpluses to take account of how much less tax they can anticipate collecting in future?
The fear has to be that the Government could make a change for the wrong reasons – because it wants tax revenue sooner”
“During the election, the Conservatives said that, once they have tapered down the Annual Allowance for high earners, ‘the pensions tax relief system will be fair and affordable and we will not propose any further changes to the system during the next Parliament’, and the consultation paper does stress that the Government may ultimately choose to stick with the current system rather than turning it upside down. The fear has to be that the Government could make a change for the wrong reasons – because it wants tax revenue sooner rather than because the new system would be any better.”
16:21: Mark Packham, public sector pension director at PwC, welcomes the announcement on LGPS asset pooling.
“Today’s announcement on asset pooling should go a long way to address the affordability of the Local Government Pension Scheme. The reward for getting this right should add up to £600 million a year across the country.
”There are a few strong local initiatives already bubbling up, and this announcement will give them confidence to build on the start they’ve made, and perhaps to invite other funds to join them.
The reward for getting this right should add up to £600 million a year across the country”
”Being ambitious with entirely new proposals will also be important: effective structures will involve scale, high levels of participation, focused governance and more choices for Councils and other employers. Some proposals will involve a significant element of internal investment management, cutting fees and a sharper focus on investing for the long term.”
16:14: Alastair Meeks, a pensions partner at law firm Pinsent Masons speculates that the acceleration of tax receipts as a result of a retirement reform has come at just the right time for an austerity government:
“The Chancellor is mulling whether to tax pensions on the same basis as ISAs. This would have three effects:
- It would effectively remove the tax advantages of the tax free lump sum;
- It would take higher rate tax relief away from all higher rate taxpayers but only give tax relief at that rate to those of them whose pensions would also be taxed at the higher rate; and
- It would accelerate the receipts of tax.
Perhaps none of these have crossed George Osborne’s mind, but it does seem like a happy coincidence that this is being floated in an austerity budget.”
16:03: Lots of industry concern that a shift towards a Taxed, Exempt, Exempt system will be an administrative nightmare:
Rosalind Connor, partner in the pensions practice at international law firm Taylor Wessing:
“Of course, this would accelerate tax receipts, rather as the ‘freedom and choice’ changes that came in this April are doing, which has obvious advantages for the Treasury. However, whether this is enough to overcome the various concerns hinted at in the paper and others, such as the challenges this causes for pensions administrators who have had a lot of change to deal with recently, remains to be seen.
Peter McDonald, pensions partner, at PWC:
“The Government’s focus on encouraging a saving culture is good news. But turning taxation on its head, while convenient from a fiscal perspective, is really hard to communicate to consumers – especially those coming into auto enrolment for the first time, who often don’t have the support of employers’ with long pensions history themselves.
Robert Young, consulting actuary, Gordon Dadds
“Although this would be simpler starting from a blank sheet, given that many have pensions already in place and with the number of employees with pension arrangements growing as a result of Automatic Enrolment this could result in yet another change to how pensions operate and to pensions becoming even more complicated. This could create yet another tranche of pension to be worked out in a different way.”
Andy Lewis, Hogan Lovells:
“The tapered annual allowance for high earners could become very tricky for pension schemes to get to grips with. Of course we need the detailed legislation: but many in the industry will remember that back in 2009-10 there were enormously complex plans for an extra pension tax charge on those earning more than £150,000, and will have their fingers crossed for a simpler approach this time.
Maybe the time has come for a root-and-branch look at the pensions tax system?”
“There are also complexities about pension saving before 6 April 2016. Transitional rules have just been announced that will affect savings starting from today (8 July) and will be a particular concern to schemes that use a “pension input period” other than the normal tax year. It will be a high priority for scheme administrators to get up to speed with these transitional rules.
“Almost ten years after the last major shakeup, maybe the time has come for a root-and-branch look at the pensions tax system?”
15:53: Duncan Buchanan president of the Society of Pension Professionals and partner at Hogan Lovells is concerned that a shift towards an ISA-like system leaves too many questions unanswered.
“A move to an ISA-like system where contributions are made out of taxed income but benefits are tax free, sounds good but in practice raises major policy issues; Will people trust the Government not to move the goal posts and start taxing benefits when they are paid and what about the pension savings that people have already made under the current basis? Will they still be taxable under the current system?
“Clearly there would also be huge complexity for active members of defined benefit schemes. They could face significant immediate tax bills for example on a promotion on a benefit that may not be payable for many years.
A move to an ISA-like system sounds good but in practice raises major policy issues”
“Pensions are a long term investment and, unlike ISAs, benefits cannot be withdrawn before a minimum age. If pensions start to be taxed like ISAs it is likely that most people would prefer the flexibility (and better reputation) of an ISA over a pension product so where would this leave auto enrolment?”
15:45: John Fox, managing director of Liberty SIPP, thinks a closer relationship between pensions and ISAs could get young people saving more for a pension.
“There’s no place for the faint-hearted in the pensions industry these days.
“The Green Paper will scare the life out of many traditional pension providers, but innovation, change and empowering people to save in the way that suits them best, are key to defusing the pensions time bomb.
“Making pensions more like ISAs is another potentially radical step and has come while the industry is still coming to terms with the new pension freedoms.
As ever, the tax god giveth, and it taketh away”
“To say the Government has shaken up the pensions industry would be a massive understatement.
“For the first time, we may actually be seeing some joined-up thinking on pensions — a regime that encourages people to save irrespective of generation.
“As expected, the increase in IHT is being funded by cutting the tax reliefs of higher earners on their pension contributions. As ever, the tax god giveth, and it taketh away.”
15:35: Richard Parkin, head of retirement for Fidelity Worldwide Investment argues that encouraging greater pension saving should remain a key priority for policy makers and careful consideration must be given when making changes to pension tax regimes.
“The cut in pension tax relief was widely trailed and does not come as a surprise yet this latest initiative to limit pension tax relief for top earners disenfranchises even more layers of senior management. This could undermine the willingness of companies to value pensions as part of their benefits systems.
”Fiddling with pension tax relief to fund giveaways in other areas is an example of great politics but bad policy especially considering that a review of pension tax relief is now underway. These presumably temporary changes will be difficult to operate and create further complexity for the industry at a time when it’s still trying to deliver the pension freedoms.”
15:25: Jamie Smith-Thompson, managing director of Portal Financial, says the new changes may disincentivise pensions saving.
“The big concern is where is the incentive for people to save into a pension? One of the main advantages of a pension under the current rules is tax relief, which is applied at the saver’s marginal rate of income tax.
”Removing that could be a serious deterrent to saving, and our own research has found that almost two-thirds of people with an annual household of over £20,000 a year would be less likely to save into a pension if tax relief was removed or reduced.
“On the other hand, for those who would still save into a pensions ISA, there could be more tax planning opportunities than just the 25% tax-free lump sum that we are accustomed to.
“Nonetheless, given that there have been a number of changes to pensions in a relatively short space of time, the chancellor should consider leaving pensions alone for a while. Constant change undermines confidence and creates unnecessary confusion, which is the last thing people need when trying to save for retirement.”
15:15: Steven Cameron, regulatory strategy director at Aegon, welcomes the delay in secon-hand annuities, but thinks FCA involvement will be crucial.
“We’re pleased that the Government is looking to delay implementation of the secondary annuity market until 2017 and that no decision will be rushed. It‘s important industry and Government work together to make this safe for consumers. It’s also important to highlight this won’t be the right option for most people.
“Future challenges include supporting customers assess what’s a fair deal and when advice should be a requirement. Selling your annuity is as complicated a decision as transferring from a final salary to defined contribution pension with risks including unexpected tax bills, running out of money, or losing ongoing payments to a spouse in the event of their death.
It’s vital that all those involved are regulated by the FCA”
“To ensure customers know they are dealing with reputable organisations, we believe it’s vital that all those involved are regulated by the FCA.
”For the market to take off, we believe Government has a key role to play in facilitating certain central services. On assignment, annuity providers lose contact with the annuitant and will needs to be a reliable mechanism for being told when the annuitant dies so payments can stop. We see this as best delivered through a Government agency.”
15:04: Crikey! Twitter goes wild for the #SummerBudget
14:55: Malcolm McLean, senior consultant at Barnett Waddingham, is relieved that salary sacrifice has come through an eventful budget unscathed.
“Bringing pensions and ISAs together under the same tax regime arrangements would be a major change and all the ramifications need to be carefully thought through. As always with pensions, which are a longterm savings vehicle, the change over from one system to another would require some fairly complex transitional arrangements to be put in force to smooth the operation going forward. It is good that the government is consulting on all of this and not making the mistake they made with the pension freedoms which were brought in hastily and without full consideration of all the issues that could arise.
“Given the importance of salary sacrifice as a means of incentivising, it is good at the moment at least, that the government have resisted the urge to axe this form of relief which is widely viewed as a positive ‘win win’ for both employer and employee.
14:49: Mark Stopard, head of product development at Partnership, welcomes a delay to secondary annuities:
“While the delay in implementing the secondary annuity market to 2017 may not be welcomed by some, it will give all concerned time to build a system which is robust and provides the in-depth package of safeguards that consumers need. Making the choice to sacrifice a guaranteed income should not be made lightly or without proper assistance.
It is obviously not ideal to wait until your fifties to start planning retirement”
“The decision to extend the Pension Wise service to those aged 50 and over is excellent news and should be welcomed. While it is obviously not ideal to wait until your fifties to start planning retirement, guidance will help those who have, improve their later life financial outlook.
14:45: Henry Cobbe of BirthStar® Target Date Funds stresses that retirement ISAs will only be popular if they remain un-tinkered with:
“We welcome any measure that stimulates and supports long-term saving, especially ones that encourage young people to save for the future. However ISAs are popular because they are not endlessly tinkered with. Any new ISA/pension merger will prove popular only if guaranteed to be tinker-free.
Any new ISA/ pension merger will prove popular only if guaranteed to be tinker-free”
“The timing of tax take for tax-incentivised saving makes a big difference both to savers and the Treasury, so the devil will be in the detail.”
14:35: LGPS investment pooling:
The government will work with Local Government Pension Scheme administering authorities to ensure that they pool investments to significantly reduce costs, while maintaining overall investment performance. The government will invite local authorities to come forward with their own proposals to meet common criteria for delivering savings. A consultation to be published later this year will set out those detailed criteria as well as backstop legislation which will ensure that those administering authorities that do not come forward with sufficiently ambitious proposals are required to pool investments.
14:33: Pensions Wise to be extended:
Following the successful launch of Pension Wise in April 2015, the government is extending access to this free and impartial guidance service to those aged 50 and above, and is launching a comprehensive nationwide marketing campaign to further raise awareness of the service.
14:28: Full budget document reveals that the implementation of a secondary annuity market has been delayed till 2017.
The government wants existing annuity holders to have the freedom to sell their annuity income. The government will set out plans for a secondary annuities market in the autumn, and agrees with respondents to the recent consultation that implementation should be delayed until 2017 to ensure there is an in-depth package to support consumers in making their decision.
14:18: Jason Whyte, director in insurance at EY, worries that a merging of pensions and ISAs may follow the old adage: marry in haste, repent at leisure
“While harmonising pensions and ISAs on the ISA model would simplify the tax regime it would mark another huge shift for savers, employers, the pensions industry and the future economy.
”If it goes through, he will receive a huge short-term windfall - unless consumers start saving less. But how much more change can savers take before they lose confidence in the system altogether? Can the industry and employers adapt when they are still reeling from the Chancellor’s 2014 changes?
How much more change can savers take before they lose confidence in the system altogether?”
“Perhaps most importantly, there could be a risk to the future economy. A generation who save through Pension ISAs will pay no further tax once they retire, while making ever increasing demands on the healthcare system. The tax revenue from their contributions will have been long spent. The scale of change contemplated is on a par with the Thatcher government’s reform of the housing market, so it is important that the government is going to consult through a Green Paper rather than just driving the change through.”
14:14: More from the document itself - including a mooted wholesale switch to TEE.
The government is interested in views on the various options that have been suggested for how the system could be reformed. These range from a fundamental reform of the system (for example moving to a system which is “Taxed-Exempt-Exempt” and providing a government top-up on contributions) to less radical changes (such as retaining the current system and altering the lifetime and annual allowances), as well as options in between.
14:06: It looks like salary sacrifice is here to stay… for now:
14:04: Darren Philp, director of policy and market engagement at The People’s Pension welcomes a consultation on tax relief.
“The constant tinkering with the pensions tax relief system over the last few years has left it in a total mess. In its current form it is unsustainable and is a system that is riddled with unfairness. The fundamental review announced by the Chancellor is long overdue and is welcome. What we need is a system that encourages savers to save for their retirement and a sustainable system that will last for the long term. This consultation is the first step in that process.”
13:56: For those looking to respond to the consultation, the deadline is Wednesday 30 September 2015.
13:53: Essentially, the consultation asks eight key questions:
- To what extent does the complexity of the current system undermine the incentive for individuals to save into a pension?
- Do respondents believe that a simpler system is likely to result in greater engagement with pension saving? If so, how could the system be simplified to strengthen the incentive for individuals to save into a pension?
- Would an alternative system allow individuals to take greater personal responsibility for saving an adequate amount for retirement, particularly in the context of the shift to defined contribution pensions?
- Would an alternative system allow individuals to plan better for how they use their savings in retirement?
- Should the government consider differential treatment for defined benefit and defined contribution pensions? If so, how should each be treated?
- What administrative barriers exist to reforming the system of pensions tax, particularly in the context of automatic enrolment? How could these best be overcome?
- How should employer pension contributions be treated under any reform of pensions tax relief?
- How can the government make sure that any reform of pensions tax relief is sustainable for the future?
13:51: That pensions ConDoc is available in full here
13:48: Former Pensions Minister Steve Webb gives his views on the pensions consultation:
13:37: Osborne wraps up by announcing a new national living wage. Almost drowned out by the cheers from the house.
13:30: Matthew Giles, pensions partner at Squire Patton Boggs, thinks a reduction in lifetime allowance will see employers turn to more esoteric savings products:
On newly mooted Workplace ISAs
“The Workplace ISA will form part of a wider review of workplace savings and benefits, taking into consideration how employers might react to such changes and what sort of tax incentives they might have in doing so. While the newly mooted Workplace ISAs could provide another in a raft of potential savings solutions, a wholesale move to the approach – where savings are taxed beforehand rather than on receipt – might well prove just too difficult to implement at this time. “
On reduction of tax relief in the Green Paper:
“There are a number of practical steps that companies will increasingly consider following the consultation in today’s announcement of a Green Paper on tax reform and pensions. With the likely future reduction of tax relief available within registered pension schemes, employers may consider alternative models for providing pension income and life assurance.
”Employers may increasingly explore Employer Finance Retirement Benefit Schemes (EFRBS), which in effect act as a contractual promise between employer and employee. While there are different forms of EFRBS available and still some tax implications to consider, it is an alternative way for some companies to deliver pension income to the increasing number of employees who find that their savings exceed the lifetime allowance.
“Employers can also look to provide life assurance through Excepted Life Policies (ELPs), where the life assurance benefit is not counted towards the lifetime allowance. These benefit vehicles have their basis in legislation and have been available since 2006 when the lifetime allowance was first introduced, but are likely to become much more popular as the allowance continues to shrink.”
13:28: No changes there then…
UK pensions industry set for more interesting times after budget announcements— craig beattie (@cgbeattie) July 8, 2015
13:25: Andrea Rozario, chief corporate officer at Bower Retirement Services welcomes the IHT changes as they will bring more clarity to retirement planning:
“The £1 million inheritance tax threshold will end a lot of unnecessary confusion about retirement planning with people focusing on beating IHT at the expense of their own comfort in retirement.
“Homeowners who are asset rich but cash poor should be concentrating on how best to ensure they maximise their income in retirement, and property wealth should be part of the solution.
“The furore on IHT is slightly out of proportion – around one in 10 estates currently pay the tax which is not insignificant but is not the biggest issue in retirement. There is concern that the new threshold will encourage people to stay in their homes in order to ensure as big an inheritance as possible. That will not help the housing crisis in the country and nor is it necessarily the best use of their assets. Bigger houses need a lot of maintenance and funding that will be challenging from pension income alone.”
13:16: Deloitte’s Simon Kew thinks that retirement ISAs are worth considering:
13:14: Osborne announces a green paper to look into radical changes in saving for retirement.
“Now it’s time we looked at theose at the other end of the age scale, at people starting to save… Pensions could be treated like ISAs. This idea and others like it need careful consideration.”
13:12: ”No more inheritance tax on family homes,” says Osborne
Of course, we know how that’s being paid for:
Hugh Nolan, Chief Actuary, JLT Employee Benefits, comments: “The change to IHT will give £140k tax relief to people inheriting a family home of over £1m. There are half a million properties in the UK worth this much. This will disproportionately benefit those living in the South East, who have already made substantial tax free capital gains on these properties.”
13:05: Osborne tells Scotland “you’ve got the powers, when are you going to use them?”
Next up, more devolution - including regionally within England.
12:55: One focus of the crack down of tax avoidance and evasion will be make sure investment managers pay full capital gain tax, says Osborne
12:52: The fiscal plan requires £37bn of consolidation over government, with £12bn coming from welfare. This is partly responsible for the DWP staff cuts we’ve seen.
12:48: Funding the NHS will require extra government funding, to the tune of an additional £8bn. No surprises here. The real question is where the Conservatives are going to find this money. Pensions seems the likely target, given promises given manifesto promises not to raise income tax, national insurance or VAT for the duration of this Parliament.
12:46: The rich are paying more taxes than ever before says Osborne. But will he be cutting tax relief further for higher earners? Watch this space!
12:45: ”Tough choices” could mean major reforms says our editor Louise Farrand:
12:44: Job creation is high on the agenda, with almost one million more jobs to be created over next five years – with an ambition to create 2m more jobs getting Britain ”on road to full employment, making work pay.”
12:43: Osborne: “We should cut the deficit at the same pace as we did in the last parliament.”
12:41: Luisa Porritt questions whether the OBR figures show investment levels back to pre-crisis levels. Perhaps the figures aren’t as good as they seem.
12:39: The chancellor says he will be bold in reforming education, welfare, infrastructure and the Northern Powerhouse.Those of us in the pensions industry will be closely watching to see where pensions might sit in those welfare reforms.
12:36: “This is a big budget for a country with big ambitions,” declares Osborne. Before talking through the growth figures for the last five years.
For those not watching, this budget is off to a rowdy start with jeers and cheers on both sides of the house.
12:35: Osborne: “This is a Conservative budget that only happened because the British people trusted us to finish the job”.
12:34: This is a budget that puts security first. It’s a budget that recognises the hard work of people over the last five years, says Osborne.
12:33: Right - now we’re off. George Osbrone takes the stage.
12:05: Jennie Kreser, partner at Silverman Sherliker thinks tax relief predictions are overblown:
11:52: Steven Cameron, regulatory strategy director at Aegon, thinks that questions should be asked about the current government’s attitude to property versus pensions:
“While both of these measures will only affect those with high earnings or property wealth, it does raise questions around the Government’s attitudes towards property versus pensions.
“With the prospect of it being acceptable for main residential properties of up to £1m to be passed on by parents to their children tax free, surely reducing the maximum pension fund to £1m, when it is designed to fund an income throughout decades of retirement, looks far too restrictive.
Surely reducing the maximum pension fund to £1m looks far too restrictive”
“While the reduction in annual pension allowance for higher earners is disappointing, we hope the Chancellor will not make matters worse by also reducing the pension lifetime allowance included in the Conservative’s pre-Election manifesto.”
11:43: Andy James, head of retirement planning, Towry comments on the speculation that salary sacrifice may be reduced or axed in the Chancellor’s Emergency Budget on 8 July:
“With the Government pledging prior to the Election that it will not make any rises to income tax, national insurance or VAT for the duration of this Parliament, it will need to find other ways of raising the money required to clear the deficit.
“It is sadly a very real possibility that salary sacrifice may be culled or reduced in this Budget. If, as is widely predicted, pensions tax relief is reduced to an arbitrary amount (for example of 30%, a reduction on the 45% relief currently enjoyed by those earning more than £150,000), then something would likely be done to stop workers get around this reduction by sacrificing more of their salary directly into their pension funds instead. As you would avoid making national insurance payments, as well as reduce your tax bill, by diverting some of your gross salary into a pension scheme, the Government would not necessarily be any better off if they were to consider a pension tax relief change without taking salary sacrifice into account.
“As it stands at present, salary sacrifice is an extremely useful scheme to boost not only pension contributions but also things such as child benefit (by reducing income below the threshold for reductions in benefits).”
11:36: Tom Stevenson, Fidelity is expecting a big bang budget:
“I expect the 8th July Budget to be much more radical than any in the last term. That’s not just because, this will be the first “pure” Conservative budget for 18 years. But also because, if Mr Osborne is to break some eggs in the preparation of his fiscal omelette, the first year of a five year parliament is the time to do it.
”After the positive changes to the retirement landscape in recent announcements, I expect any new initiatives to be less about increasing freedoms for pensioners and more about increasing revenues for the Treasury.
“With £35bn being spent by the Government on tax relief (80% going to higher rate tax-payers) and a further £15bn handed to companies in foregone national insurance on pension contributions, the incentive for the Chancellor to launch a raid on our retirement savings is too great to pass up, I suspect.
I expect any new initiatives to be less about increasing freedoms for pensioners and more about increasing revenues for the Treasury”
”How he chooses to get hold of the money remains anyone’s guess. Options include: the already-announced tapering of the annual contribution allowance for higher rate tax-payers from £40,000 a year to £10,000; a reduction or total scrapping of the ability to take a quarter of a pension pot tax-free at retirement; the abolition of higher-rate tax relief on contributions; or something even more radical like the creation of a new Retirement ISA.”
11:30: The Treasury has already confirmed its intention to consult on the pension freedoms and the problems experienced by investors in accessing their savings. Hargreaves Lansdown suggests we might see the consultation paper published alongside the Budget.
Computer says no’ is no longer an acceptable response”
McPhail explains: “Exit penalties, delays and complexity have no place in the pension freedoms. Investors should be free to do what they want with their retirement savings; ‘computer says no’ is no longer an acceptable response.”
11:15: David Smith, financial planning director at Tilney Bestinvest, also believes a reduction in lifetime allowance could lead to employers and high earners considering a broad savings landscape.
“For those likely to be caught be the proposed lower annual allowance or the reduced lifetime allowance, retirement planning will require a broader approach than simply maximising pension and ISA contributions. While the likes of Enterprise Investment Schemes and Venture Capital Trusts can have a role to play, their specialist and higher risk nature means they cannot fill the gap created by decreased scope for pension investments on a like for like basis.
”For many, careful use of annual capital gains tax allowances, to draw down lump sums from portfolios of growth investments will have an increasingly important role to play, so bespoke financial planning is going to be key.”
11:05: Tom McPhail warns that those earning more than £150,000 a year may want to make additional investments now:
There are mounting fears that the Chancellor could announce further details of this restriction to the Annual Allowance on Budget day, with the possibility it could take effect the same day. Hargreaves Lansdown is urging that higher earners who are currently eligible to contribute up to £40,000 and secure 45% tax relief to act now or risk missing out.
The potential cost to someone earning £210,000 or more could be £13,500 in lost tax relief (45% of £30,000).
“Right now, anyone earning over £150,000 who is planning on making pension contributions this year should give serious consideration to making their investment ahead of the Budget, just in case the Chancellor brings down the shutters on 8th July.”
10:55: Is it time to scrap the lifetime allowance altogether, asks David Brooks, technical director at Broadstone
“This may be a step too far but the Chancellor should make a volte-face and scrap the Lifetime Allowance. There must be a general principle that directly taxing some workers twice on the same income is incompatible with fairness. If some pension scheme members are to lose tax relief, therefore pay income tax in full on their pension contributions it cannot be right that they should then pay income tax again on the proceeds.
This may be a step too far but the Chancellor should make a volte-face and scrap the Lifetime Allowance”
”Worse, many of these pension scheme members will increasingly exceed the ever reducing Lifetime Allowance. Under the present system those that do face paying full income tax on contributions and then a 55% tax on anything left when they retire, giving an incredible 75% tax rate. The Chancellor must address this if he is to remove tax reliefs for some.”
10:40: Liam Mayne, principal consultant at Aon Hewitt, points out that one of the biggest implications of cutting the lifetime allowance is that it presents a real challenge for employers trying to keep their workforce engaged. This could see a further shift towards more holistic products like workplace ISAs.
“If the Chancellor follows the Conservative Party manifesto pledge regarding the Annual Allowance and it is implemented, then, at a high level, those on salaries of £210,000 or more could see about a third of their pension savings being paid away in annual tax charges each year.
“Where individuals are also hit by the falling Lifetime Allowance, it firmly becomes an issue for their employers who could see up to around two-thirds of their contribution to an employee’s pension benefits being paid away in taxes over the course of the employee’s lifetime.”
Employers may look to wider savings vehicles such as providing corporate ISAs”
“If these changes go ahead they will present a real challenge for employers who will have the task of finding ways to keep these individuals engaged in pension savings. This could lead them to consider whether a tax registered pension scheme is still the best place for these individuals to save into.
“Employers may look to wider savings vehicles such as providing corporate ISAs - which benefit from ever increasing savings limits. Alternatively, companies may look to use unregistered pension schemes as a means of providing more tax efficient benefits for these individuals, or they may simply aim to facilitate better ways for individuals to navigate this increasingly complex landscape themselves. This might include facilitating access to online tools, subsidising IFA costs, or providing more information in annual benefits statements to allow regular monitoring against the allowances.”
10:32: Martin Jenkins, head of pensions at Irwin Mitchell is another expert predicting salary sacrifice may be high on the hitlist for our first conservative government.
“A great deal of changes on pensions have been introduced in recent Budgets - most notably ever more restrictive limits on tax relief for pensions savers and a new right to encash pension rights. With all this change , the pensions industry could be forgiven for hoping to be left alone in this next Budget.
“Indeed some of the announced changes from the last Budget are not yet in force including a reduction, effective April 2016, of the Lifetime Allowance to £1m. This change has come in for considerable criticism ahead of its implementation. Potentially modest pension benefits of as little as £25,000 pa could come in for tax charges. Some have speculated that the Chancellor may announce a re-think on this change. A vain hope it seems.
The former Pensions Minister Steve Webb has warned that the Treasury are looking at possibly closing this ‘£15bn loop-hole’”
”Another rumoured possibility is a change in National Insurance charging. Currently if an employer introduces a salary sacrifice option, such a scheme is not chargeable to NI. Salary sacrifice arrangements are familiar as means of offering tax effective benefits covering everything from subsidised bicycles to work-place nursery facilities.
“Pension contributions can also be made under a salary sacrifice plan and as with other such arrangements there is a benefit to employers and staff in reduced NI Contributions. A number of large employers including British Airways, Lafarge and most of the supermarket chains have implemented such policies. The former Pensions Minister Steve Webb has warned that the Treasury are looking at possibly closing this ‘£15bn loop-hole’. This would not be a popular change with the huge number of employers who have spent time and money implementing such plans and explaining the benefits to their staff.”
10:25: Towers Watson’s David Robbins is looking to the Conservative briefing note on the inheritance tax promise that was sent out on 11 April for clues. He’s very much hoping it will be stuck to, despite widespread speculation that tax relief will be for the chop!
In case you can’t quite make that out, it says: we believe that the pensions tax relief system will be fair and affordable and we will not propose any further changes to the system during the next parliament
10:15: David Brooks, technical director and consultant at Broadstone CB, thinks a cap to tax free cash could also be on the agenda:
10:04: Tom McPhail, head of pensions research at Hargreaves Lansdown has tweeted us his pensions predictions.
10:00: Partnership have turned to consumers to see what they want from a budget.
Increasing penalties for tax avoidance by business (52%) and increasing the amount of tax those who earn £150,000 or more pay (50%) were the most popular moves. They were also in favour of stiffer penalties for individuals who avoided tax (39%) while others felt that non-means tested benefits [e.g. free bus pass] should be reviewed so they are only available to those who need them (10%).
Mark Stopard, head of product development at Partnership, said:
“Tomorrow, the Government is in the unenviable position of needing to cut spending and raise revenues in order to balance the books. When asked, consumers clearly felt that those people and corporations who avoided tax should be penalised while at the same time, higher earners should shoulder a larger tax burden. These moves are unlikely to impact most people on a day to day basis so you can see the appeal, but we will need to wait until tomorrow to see exactly what the new Budget brings.”
09:45: Gavin Moffatt, associate at City Noble, independent pension advisers, thinks salary sacrifice could be next for the chop.
“It’s well-known that The Chancellor is expected to hit pensions for higher earners cutting their annual allowance to £10,000 as a trade-off for a crowd pleasing end of inheritance tax on family homes worth up to £1 million.
“Such a move will take higher earners back to double taxation. Any contributions or accrual over the £10,000 will be taxed on the way in and again on the way out. This is more punitive than measures proposed originally by Gordon Brown to limit pension tax relief for higher earners. In 2010 the former Labour Chancellor proposed a mere reduction to 20% tax relief for incoming funds.
This time the Chancellor might actually do something about it”
“Another major perk for working people to boost their pensions, used by many middle and higher earners, is salary sacrifice. While salary sacrifice is always touted as a potential target in any Budget, this time the Chancellor might actually do something about it. If he decides to progress further, in our view any workable attempt would mean not making employer pension contributions in general subject to NI, which would be extremely contentious, but to attack the act of sacrifice itself.
“This would mean setting down a definition in law and treating amounts sacrificed as earned income. Needless to say it would be hideously complicated, and with everything else to contend with let’s hope salary sacrifice survives another year.”
09:25: Liz Field, CEO of the Wealth Management Association, thinks that reduction of tax relief is sending conflicting messages to savers.
”Cutting pensions tax relief sends an anti-saving message whatever guise it is in – whether a person earns £30,000 or £150,000, creeping taxation puts people off investing and saving for retirement and disincentivises those saving less from trying to save more in case they get caught by taxes coming lower and lower down the scale.
“These changes come after the Chancellor’s ‘savings revolution’ in his last Budget just four months ago, and follow his widely publicised and promoted new pensions freedoms. Constant shifts in government treatment of these issues reduce trust in government initiatives and increase the public cynicism with which policy announcements are met.
Cutting pensions tax relief sends an anti-saving message whatever guise it is in”
“This is counterproductive to significant savings and investment objectives and undermines their impact on jobs, growth, infrastructure development and the ability of people to look after themselves in later life. The changes encourage people to spend their pension money, rather than keeping it for the long term.
“We need a long term government commitment to developing a full-scale savings and investment culture in the UK. With the reforms of recent years we thought we were heading in that direction. Today’s announcement cynically explodes that naive perception.”
09:10: Paul Waters, partner at Hymans Robertson, thinks tax relief will be high on the agenda, but hopes that we can see a shift towards a flat rate to redistribute tax relief more fairly.
“The Conservatives made a pledge in their manifesto to implement a sliding scale of annual allowance that tapers from £40,000 at £150,000 of earnings to £10,000 for those who earn more than £210,000. It would be surprising if this didn’t feature today.“There is a clear trend towards reducing the bill for tax relief on pensions. At the last Budget we saw the lifetime allowance cut to £1m. The question is how much further will the Chancellor go today?
“Our view is that the current model of tax relief is distorted, with too much of the value flowing to higher earners. We do need a model that’s more equitable for all UK pension savers, but it needs to give everyone an incentive to save. A flat-rate tax relief on pension saving, perhaps at the 33% level suggested by Steve Webb, the former Pensions Minister, would do that.
Our view is that the current model of tax relief is distorted”
“This would impose a natural limit for higher-rate tax payers. Lifetime allowance limits could then be scrapped, ending the inequitable impact on DC versus DB pension savers. We hope the Chancellor has considered this, as we need a system that’s sustainable but fair, that rewards people for taking control of their finances, encouraging saving. This would fit the bill.”
09:00, 18th March 2015: Welcome to our Emergency Budget 2015 live blog. This morning we’ll be looking at the industry’s predictions, hopes and fears. From 12:30pm we’ll be covering the announcement itself, with everything you need to know, as well as responses from industry experts.
Last year’s budget was described by many in the industry as revolutionary. For the first time ever, we saw UK scheme members given unprecedented control over their savings, including taking pensions as cash and access to flexible drawdown arrangements.
And earlier this year - in the pre-election budget we saw more tweaks to the lifetime allowance, annuity resale and more long-dated gilts. To remind yourself of all the annoucements take a look at our cheat’s guide.
What will this year bring? Well, many in the industry are expecting more tax relief changes and there are rumours of a change in the world of salary sacrifice.
Now, we’ll have a look in depth at what today’s announcements may be.