March Budget – pensions in spotlight
7 January 2020
Chancellor Sajid Javid has announced that the first post-election Budget will be held on 11 March and has promised that it will “usher in a decade of renewal” for the UK.
While the run-up to the December election focused heavily upon the UK’s exit from the European Union, experts say the Budget will be a chance to lay out the government’s vision for the coming years in greater detail and address key manifesto pledges.
According to Tom Selby, senior analyst, AJ Bell, this is likely to include the issue of net pay and the annual allowance taper.
He says: “The net pay issue has plagued low earners for years, with those in the wrong type of pension scheme missing out on valuable tax relief.
“The taper is perhaps the more pressing problem politically, particularly given the impact it has had on high-earning workers in the NHS. The Conservatives pledged an ‘urgent review’ within 30 days of entering Government – meaning in theory at least there are just days left to fulfil this promise.
“It is therefore possible these reviews of specific pension tax problems will open up Pandora’s Box, focusing Treasury attention on the overall structure – and cost – of pension incentives.”
In 2017/18, the net cost to the Exchequer of tax and national insurance relief on pensions was around £35 billion. However, while the government may seek to make changes to pension tax relief, Selby says a sensible approach is vital.
He adds: “Ripping up the roots of our savings system without first understanding how this might affect the propensity of people to save for retirement would be a huge risk and could undermine the good work so far done under automatic enrolment.”
Steven Cameron, pensions director, Aegon, said the government should use the decade ahead to strengthen preparations for longer retirements and address the social care crisis.
He says: “Over the last decade, auto-enrolment has meant millions of additional employees are now saving into workplace pensions. The challenge for the coming decade is to make sure they are saving enough for the quality of life in retirement they aspire to. The government now needs to advance previous proposals to increase minimum contributions and find solutions to ‘level up’ pension provision for the self-employed who are currently excluded from auto-enrolment.”
Cameron says the pensions industry and government need to work together to help engage people with their retirement savings through initiatives such as pension dashboards, with many people needing to save more than the auto-enrolment minimum to meet their retirement aspirations.
AJ Bell would also like to see greater flexibility around the state pension.
Cameron explains: “With growing controversy over the continued increases to state pension age, and to mirror the flexibility already available within private pensions, we’d also call on the Government to explore in the coming years how to offer people the choice of taking their state pension earlier than the ‘standard’ age at a reduced level to make it financially fair.”
The issue of social care is also likely to feature in Savid Javid’s Budget, with calls for the Conservative party to outline what the Government will pay and what people will be asked to fund themselves, based on their wealth.
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