The Chancellor’s decision to leave pensions tax relief unchanged in yesterday’s Budget has divided the industry between those relieved at the maintenance of the status quo and those calling for a big overhall.
The Association of British Insurers, Pensions Management Institute and a number of big pension providers all responded to Chancellor Philip Hammond’s Budget with calls for a fundamental review of pensions tax relief, rebranding it as a ‘saver’s bonus’, setting them at odds with a raft of other providers celebrating another financial year of no change.
Experts welcomed the lack of tinkering at the edges of tax relief on pensions, with predicted cuts to the annual allowance or relief on employer National Insurance contributions failing to materialise. Several commentators argue the political weakness of the Chancellor is the main reason why no changes were made, predicting the issue could return to the top of his agenda if the Government’s position becomes stronger in future.
ABI director general Huw Evans says: “There are still strong arguments for a fundamental overhaul of pension tax relief to make it fairer and more sustainable but it is the right decision by the Chancellor not to be tempted by piecemeal changes.”
The Pensions Management Institute president Robert Branagh says: “It is disappointing that the Chancellor missed an opportunity to improve standards of pension provision in the Budget. Concerns about pension tax relief and rebalancing intergenerational unfairness have failed to materialise despite the Government’s aim to help younger voters.
“The opportunity to encourage more savings in the workplace has also been missed and we are now even more concerned that the Government is not interested in pensions and long-term savings over the remainder of this Parliament, as it is focused on other issues. The gap left by this Budget means the pensions industry will need to step up and work with the Government to ensure that we continue to foster a much-needed savings culture within the UK.”
Aviva MD savings & retirement Lindsey Rix says: “The longer term focus should be on a “once and done” fundamental reform to the pension tax relief system to make it fair and easy to understand for everyone. We would like to see a system where for every £2 someone saves the government would top it up with £1.
“We would also replace the term ‘pension tax relief’ with ‘saver’s bonus’ so people have a much clearer understanding of the benefit they gain from saving into a pension.”
The People’s Pension director of policy Darren Philp says: “With an ageing population and 14 million Brits unlikely to have enough to live on in retirement, the Chancellor’s lack of action to support long-term savers is incredibly disappointing.
“Year on year ahead of the Budget there is constant speculation about reform of pensions tax relief, a system that is now on borrowed time, yet we continue to see no action. The current system is unfair for lower earners and so unclear that most people are not aware of the benefit. A flat rate system, set at between 25-30 per cent and presented as a simple bonus or top-up, would have made a firm statement in support of auto-enrolment and helped more people to save for the future.
“It is also disappointing that with the auto-enrolment review approaching, the Chancellor missed the perfect opportunity to outline the government’s intent, and show its commitment to the seven million people who are currently excluded from the scheme.”
Aegon pensions director Steve Cameron says: “The lack of any mention of pension tax relief is very unusual for Budgets but very welcome. Implementing any change would have been hugely complex and required legislation in a parliament dominated by Brexit.
“Pension tax relief does reduce the Chancellor’s tax take in the short term, and there’s a case for redistributing this to those most in need. But this should be done only once there has been time for proper debate and not rushed through as a government cost cutting measure.”
Prudential retirement expert Les Cameron says: “The latest Budget has seen something that many in the retirement planning world have wanted for many years – no changes to the pension system. Hopefully this is a sign of things to come and will help to increase consumer understanding of, and confidence in, pension planning.”
Hargreaves Lansdown head of policy Tom McPhail says: “No news is good news for pension investors. The stability of no change is a welcome relief after years of political interference and the salami slicing of reliefs and allowances. There may have to be further changes at some point in the future. Higher rate relief in particular is still likely to be scrapped as soon as a government feels it is strong enough to do it; in the meantime investors can make hay while the sun shines.”
Mercer principal Glyn Bradley says: “This was the quietest Budget for pensions in many years, and pension savers will breathe a sigh of relief that the tax relief and various allowances for pension saving were not cut again.”