Summer Budget: Pensions
Tax advantage removed on pensions
As widely touted, the Chancellor reduced the tax advantage of saving into a pension for higher rate taxpayers with the introduction of a taper in the annual allowance for pension contributions from April 2016. Mr Osborne said the measure will cap available tax relief for those earning £210,00 a year at £10,000 per annum.
The pension ISA, a long-standing pet-project of newly ennobled pensions’ minister Ros Altmann, is one of the options to encourage people to save for the long term to be consulted on in the Pension Green Paper published today.
While welcoming the Government’s consultation, many experts urged caution. Andrew Tully, pensions technical director, Retirement Advantage, said: “This is a very broad consultation which is asking for views on a wide-range of options. However, it is a big deal which could fundamentally change how people save for their retirement in the future. A move to an ISA style system would come with many complexities, as existing pension savings would need to be ring-fenced.
“It is also far from clear how a defined benefit scheme could be converted to an ISA style system. It is positive the Government are moving more slowly and seeking wide views on such a dramatic change.”
The Chancellor also announced he was pressing pause on his plans to introduce a secondary annuity market until April 2017. The market is intended to allow those over age 75 who had had to purchased an annuity before the law was changed last year the possibility to trade in their annuity for a cash lump sum. However, the industry had raised a number of concerns about how the market would function.
Joanne Segars, chief executive of the national Association of Pension Funds welcomed the postponement. She said: “It is good news that the Government has recognised our concerns about the challenges in ensuring savers are protected and supported in this market. We look forward to working with the Government to help them shape further plans for this initiative.”
Jamie Jenkins, Head of Pensions Strategy at Standard Life said: “It’s good news the Government is looking at incentivising people to save for retirement through a root and branch consultation on tax relief for pensions.
“Despite some suggesting that the industry was resistant to any change in this area, quite the contrary, we have been calling for a more fundamental and considered review rather than constant tinkering. This provides us with a great opportunity to simplify the pensions tax system once and for all.”
On the delay to the secondary annuity market, he said: “The proposal to allow people to sell their existing annuity income has been delayed until 2017. This looks like a very sensible extension to allow further discussion on how such a market would work for consumers, given the complexity of some of the issues identified.”