6 months on and are we any clearer on where pensions are heading?
This time last year I was speculating about the possible changes to tax relief on pension contributions, the various options available and problems that would need to be resolved. Like most pre-budget speculation it turned out to be a damp squib and further major changes to pensions appeared to be put on the back burner.
Then came the post-Brexit political fallout with the appointment of a new Prime Minister and Cabinet. One thing we did gain from the upheaval was some insight as to the workings, or should I say non workings, of the Government. Baroness Altman the deposed pensions minister stated ‘I have tried to drive positive long-term changes on pensions from within Government and ameliorate some of the past mistakes which I have cautioned against. Unfortunately over the past year, short-term political considerations, exacerbated by the EU referendum, have inhibited good policy-making.’ Added to this less than comforting statement was George Osborne saying that if he had remained as chancellor we would have moved away from pensions to an ISA-centric world.
Would Theresa May follow along this path or would our leather clad leader change direction? Well over 6 months under the new management and we appear to be still very much in the dark.
The position of pensions minister has been demoted to that of a Parliamentary Under Secretary of State which is the lowest of three tiers of government minister. The Duke of Devonshire, who served as an under-secretary in Macmillan’s 1957–1963 Conservative government, noted ‘No one who hasn’t been a Parliamentary Under Secretary of State has any conception of how unimportant a Parliamentary Under Secretary of State is’. I hope for the sake of pensions this is not the case.
Richard Harrington is the man who now holds the position of pensions minister. He has publicly stated that a top priority is to ensure that the on-going rollout of automatic enrolment continues to be a success. He also wants to make certain that the right protections are in place, is very keen to have a new single guidance body and wants more measures put in place to protect individuals from pension scams. Now all this is great but in the overall scheme of things these are more akin to fine tuning of an engine rather than a complete re-build.
So can we give a sigh of relief and feel safe knowing that as pensions are now in the hands of a mere junior minister we can expect no major changes? Alas I doubt it. In the consultation document on the reduction in the money purchase annual allowance, issued as part of the autumn statement, great emphasis was placed on the fact that the cost of tax and National Insurance relief on pension savings costs the Treasury around £48bn in 2014/15 with two thirds of the relief going to higher and additional rate taxpayers. Changes to the money purchase annual allowance are not even going to make a scratch on this figure so more than fine tuning is required if the Government want to reduce or more fairly redistribute the relief.
What we do appear to have is some respite before a major rebuild and for those fortunate to be able to make additional contributions to their pensions they should maximize the opportunity whilst they can. Beware the day when Richard Harrington dons a pair of leather breeches as this may be a sign of major changes to come.
This blog first appeared on Professional Adviser