What will be announced on 16 March?
Last Friday I sat down to write a blog post for the AJ Bell Investcentre Infocentre. The post was really about my overall frustration with the mixed messages that appeared to be coming out regarding the changes that the Chancellor would include in the Budget on 16 March.
I was expecting a flat rate of tax relief, a pension ISA or something different – the ‘no change’ option didn’t appear to be a realistic one. So imagine my surprise when I was woken up on Saturday morning by the news on the radio, announcing that the proposals had been shelved (For the time being? [My italics added at the end.])
There had been some whisperings that the Chancellor was keen to steal some Labour territory by reducing tax relief for higher earners (making him look good while at the same time creating the chance to receive a nice little tax bonus). However, at the same time the rumbling of opposition in his own party was getting louder, with talk of a Commons rebellion and MPs refusing to accept the targeting of Conservative key voters. Add in a little bit of Brexit referendum in June and the Conservatives could not afford the hassle.
Stay of execution or maintenance of the status quo? Could be either, but I think I favour the former rather than the latter.
Some political commentators have suggested that during a Parliament there is an optimum time to bring in radical and potentially unpopular policies before having to look to the future and winning the next election (here we have the extra factor that the Chancellor could also be seeking personal political advance at the next election).
So, what next? I think there are two real options for a ‘nothing will be done’ Budget – either genuinely do nothing, or do a bit of tinkering to ease future reform. I tend to think the latter is most likely.
Here are a few random thoughts on what the Budget will/could bring:
- If this is just the calm before the storm, then it could be the last chance to put in large contributions to maximise relief – costing the Chancellor even more! So perhaps a bit of temporary anti forestalling until we get the new system. The easiest way might be to reduce the Annual Allowance to, say, £20k p.a.
- Could enhance this by removing/restricting ‘carry forward’.
- I am not sure that further reducing the LTA will be beneficial, as more people will potentially give up on a pension altogether, as they feel it is too restrictive.
- Not enforce the Tapered Annual Allowance – it is complicated and the administration of it probably outweighs the need.
- Perhaps more equitable would be to look at levelling the playing field with regard to the LTA between DB and DC schemes – that beneficial 20X multiple that applied to DB for the LTA could be changed and the two regimes uncoupled with a view to further DB amendment.
- Other preparatory actions could be to look at salary sacrifice with a view to make it less attractive and to the same end looking at introducing NI contributions on employer contributions.
In the last week I have been in the West Country talking to advisers and this whole debate was top of the agenda. A limited sample I know, but their views were interesting none the less. Obviously there was a lot of call to retain the status quo, but many felt that an acceptable alternative would be a flat rate of tax relief of at least 30%, particularly if the LTA could be abolished at the same time.
I have yet to hear any positive support for the pensions ISA, although there has been a suggestion that perhaps it could be launched alongside the current regime and perhaps pitched to younger tax payers who like the ISA concept and who are not so wedded to the existing system. (Could this be a way of bringing it into the market, pending wider reform?)
Anyway, enough speculation. Let’s wait until next week to see what we do get – and in the year of the tenth anniversary of ‘pension simplification’, let’s hope those objectives are still to the fore.
If I can just quote one line from the blog post that I had been preparing before the Chancellor’s announcement that the proposals had been shelved:
“The next 12 days will surely be interesting and I am sure there will be rumours galore. What are the chances of it all being scuppered by politics?”
As a number of people have suggested, pensions and long-term savings are too precious to be left to the politicians. What price further calls for an Independent Pension Commission?