The good news is that tax-free cash lump sums was excluded from any changes in this Budget but there still remains a lack of stability, warn commentators.
The Chancellor’s decision not to alter the arrangements around tax free cash, a hugely popular part of the pensions system, as well as to pension tax relief, has been welcomed by the industry, as any move to reduce them would have severely undermined people’s trust in the UK’s pensions regime. But commentators called for stability that savers could count on when long term saving.
Fidelity International urged commitment to developing sustainable policies for pension taxation. The firm stated: “Changing the pension tax-free lump sum allowance has been discussed consistently for years in the run-up to fiscal events. Reducing or removing it would have disrupted the retirement plans of many consumers and risked disengaging pension savers at a time when much good work is being done to increase engagement and improve pension outcomes.
“Regular tinkering with the pensions taxation system erodes trust and makes it difficult for consumers to plan. Worse, constant speculation risks consumers second-guessing what may or may not change.
Tom Selby, director of public policy at AJ Bell, said: “While it is positive news for savers that pension tax relief and tax-free cash have been left untouched at the Budget, the chancellor’s failure to commit to a Pensions Tax Lock means there is every chance instability will rear its ugly head again before next year’s fiscal event.
“We have seen in recent months just how destabilising this speculation can be for people, with both contributions to pensions and the number of people accessing their tax-free cash increasing markedly ahead of the Budget. When it comes to tax-free cash, in particular, any decision to take your money could be irreversible and could result in people losing out in the long term.
“Given the significant commitment people make when they contribute to a pension, the least they should expect in return is that the goalposts won’t be moved once they have made that decision. A Pensions Tax Lock would help engender greater trust in pensions, giving people more confidence to save for retirement and in the process increasing the amount of money invested for the long term, including in UK Plc.”
Fidelity International added: “As the Government continues its Pensions Review, moving from the first stage to the second, we encourage it to include pensions taxation so a sustainable set of policies can be defined, and to take a broad view – considering the state pension alongside the development of the automatic enrolment regiment and the adequacy of retirement outcomes for the future generation of defined contribution retirees.”
