The Autumn Statement by Chancellor George Osborne was a bit like a teaser for the real thing as far as the pensions industry was concerned, and in particular those involved with private pensions. Before the statement there was the usual speculation on what would be covered with many commentators focusing in particular on one area where the Chancellor might make an important statement.
Earlier this year the Government consulted on incentivising pension saving which concentrated on whether pension tax relief should change. Would there be a move away from the current EET model (where contributions and investment returns are exempt from tax but most retirement income is not) to something else? Was today the day we found out? Well, ‘No’, was the answer but although the Chancellor didn’t mention anything in his speech, he did put a teaser into the papers published after he sat down.
However, before we get to that what did the Chancellor announce? Today he covered changes, or in some cases no changes, to State Pensions and auto enrolment contributions. What he announced was:
- No change to the triple lock increase applicable to the basic State Pension. This allows pensions to increase above inflation.
- An increase to the Basic State Pension taking it to £119.30 a week from April 2016. This is the biggest increase to the Basic State Pension, in real terms, since 2001.
- The new single-tier pension is set at £155.65 a week.
- To simplify the administration of automatic enrolment, the next two phases of minimum contribution rate increases (due October 2017 and October 2018) will now be deferred six months to the following April and aligned to tax years.
- Pension tax credit payments for people who have moved overseas for more than a month will be stopped.
A few other points not mentioned by the Chancellor but contained in the papers.
- There will be an announcement in December about creating a secondary market for annuities. This announcement will also set out a framework for consumer protection.
- The Government is also to consult on the use of salary sacrifice schemes as it remains concerned about the growth of such schemes. As salary sacrifice schemes are an option used frequently for pension contributions this is one that may have an impact for employers and members.
- The Government has confirmed that it won’t levy inheritance tax on cash left in income drawdown pension pots when members die.
So what about tax. That announcement will be covered in the 2016 Budget. Talk about a sense of anticipation! And what might we anticipate? The fact that the Government is looking to cut excessive tax breaks then these tax relief changes are viewed by many as “low hanging fruit”. Is the Budget in 2016 when he harvests it? Time will tell, but at least we know when the tell day will be.